Definition ∞ Non-Security Tokens are digital assets that do not meet the legal definition of a security under applicable regulatory frameworks. These tokens typically serve a functional purpose within a decentralized application or network, granting access to a service, utility, or governance rights, rather than representing an investment contract or ownership share in an enterprise. Their classification often depends on factors such as their intended use, how they are distributed, and the degree of decentralization of the underlying project. Regulators apply tests, like the Howey Test, to determine this status.
Context ∞ The distinction between security and non-security tokens remains a central and often contentious issue in digital asset regulation globally. Regulatory bodies are actively working to provide clearer guidance on the criteria for this classification, which significantly impacts compliance obligations for issuers and platforms. Projects frequently design their tokens specifically to avoid security classification, aiming for greater operational freedom. This ongoing regulatory clarity is crucial for the development of the decentralized application ecosystem.
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