The functional utility test is a regulatory assessment used to determine if a digital asset primarily serves a practical purpose within a specific network or application, rather than functioning solely as an investment. This evaluation examines whether the token grants access to a product or service, enables network participation, or is consumed for its intended use. A positive outcome often suggests the token may not be classified as a security, influencing its regulatory treatment. This test helps distinguish between tokens used for utility and those primarily for speculative investment.
Context
The functional utility test is a central element in regulatory discussions surrounding the classification of digital assets, particularly by agencies like the SEC. A significant debate involves the evolving nature of utility, as tokens can acquire investment characteristics over time or through secondary markets. Regulators seek clearer criteria to apply this test consistently, providing greater certainty for developers and market participants.
The staff's targeted no-action relief establishes a critical functional utility test for network tokens, de-risking infrastructure-focused issuance models.
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