A utility token is a cryptocurrency that provides users with access to services or features within a specific blockchain ecosystem, without representing ownership or investment.
Understanding Utility Tokens
A utility token—often called a ‘user token’—is a type of cryptocurrency that grants holders access to services or features within a specific ecosystem. Think of it as a key, unlocking doors within a decentralized platform or application. These tokens are integral to the economies of systems like DEXs, metaverse platforms, or Web3 applications.
Acquiring Utility Tokens
How do you get your hands on these tokens? They’re typically distributed through Initial Coin Offerings (ICOs) or Initial Dex Offerings (IDOs). Once you have them, they offer privileges like service access or fee discounts. Some even allow you to have a say in the future of a decentralized application (dApp) through voting on proposals.
Utility Token Standards
The go-to standard for these tokens is the ERC-20, developed on the Ethereum network. It’s a template that ensures consistency and compatibility across the board.
Utility Token Examples
- Basic Attention Token (BAT): Used in the Brave browser, it rewards users for viewing ads and can be traded on exchanges.
- Chainlink (LINK): Powers the Chainlink oracle network, rewarding operators for providing real-time data to the blockchain.
Utility vs. Security Tokens
Don’t confuse utility tokens with security tokens. The latter are investment tools, often representing a real-world asset and ownership in a project. Utility tokens, however, are for use within a blockchain ecosystem and don’t signify ownership.
- Usage: Security tokens are for investment; utility tokens are for access and interaction.
- Valuation: Security tokens’ value is tied to the issuing entity’s worth; utility tokens’ value is not.
- Regulation: Security tokens are regulated; utility tokens, not so much.
ERC-20 Tokens
ERC-20 tokens are a technical standard for fungible tokens on the Ethereum blockchain. They’re smart contract-based and track tokens created on the network.
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Depegging in Cryptocurrency
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