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Blockchain

Security Tokens Explained: Security Tokens vs. Utility Tokens

Both security and utility tokens are offered by private entities. Receipt of the transaction is transferred to the public blockchain for a permanent record. And what about the difference between a security token and a utility token. One of the biggest differences is value expectations. The value of a security token is tied to the company’s value. If the company’s value increases, the value of its token will also increase—making security tokens clear examples of “securities” under the federal securities laws. The value of utility tokens, however, have no relation to the value of the company. Also while a security token represents legal ownership of a digital asset, utility tokens merely entitle purchasers to receive the purpose for which the utility token was created. Another significant difference is federal regulation. Because security tokens represent ownership interests, they may be “securities” and therefore subject to extensive SEC regulations. On the other hand, there is little—if any—regulation for utility token ICOs. And because utility tokens are largely unregulated, there is a higher fraud and scam potential compared to security tokens.

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