Utility token classification is the process of determining whether a digital asset functions primarily to provide access to a product or service within a blockchain ecosystem. This classification distinguishes tokens used for practical application, like paying for network fees or accessing features, from those primarily representing an investment in an enterprise. Regulatory bodies often apply tests, such as the functional utility test, to make this distinction. A utility classification typically means fewer regulatory burdens compared to security tokens.
Context
The regulatory distinction of utility tokens from securities remains a significant area of debate and evolving guidance globally. Projects seek this classification to avoid stringent securities registration requirements, fostering innovation and adoption. Regulators continue to refine criteria, considering factors like network decentralization and the actual use cases of tokens, to provide clearer pathways for compliant digital asset development.
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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