A utility token is cryptocurrency that exists to provide a ‘utility’ within a certain ecosystem. By using a utility token you can often receive benefits or discounts within the platform its built for.
When a blockchain ecosystem is created, a token is often created to enhance the ecosystem. There are a number of utilities these tokens can provide that enhance user experience. As such, it is often desirable to use or hold the relevant utility token if you are a frequent user.
One can think of utility tokens much like loyalty points in stores. If you have a lot of loyalty points you can qualify for bonuses, upgrades, discounts and more. By owning a utility token you can qualify for many of the same things, and thanks to the power of crypto there are a few unique benefits that come from holding a utility token.
Are Utility Tokens Investments?
Strictly speaking utility tokens are created with the explicit purpose of not being an investment.
With that said, most utility tokens are created with a finite supply and a number of highly desirable use cases. Since the demand is high and the supply is limited, it’s not uncommon for utility tokens to perform very well in the crypto markets, providing the service behind a utility token is strong.
Due to the observed performance of certain utility tokens, investing in UT’s is common practice. The price of them is not tied to the performance of the business, nor is the issuer responsible for the trading price of the asset. However, since investors have realized the growth potential of certain UT’s, investors are still keen to jump in.
What Can a Utility Token Do?
There are so many utilities. The possibilities are endless. Here are some of the more common utilities you’ll find.
The most common utility is turning the UT into the native currency of the ecosystem. This means that all services are paid for with the native token. Payments are either incentivized by providing a discount or they are forced by making the token the only possible payment method. If the service is in high demand this can work well.
One of the most basic utilities is ‘access’. By holding the token you gain access to the platform. Without holding, you can’t use the associated services. There are levels to this too. The more you hold, the more features you see.
Holding the token can grant you certain benefits within the system that are usually either discounts or exclusive access. For example, exchange UT’s can often be held to receive a discount on fees and gain early access to new features or IEOs.
Being a token holder can be a way to earn a passive income. Whether it’s staking, a revenue share or something else, sometimes it pays to be a token holder.
Some tokens also reduce their supply periodically which incrementally increases the ‘value’ of the other tokens left.
Some networks give token holders voting rights. This means that the more tokens you hold, the more say you have on anything that is being voted on within the network.
Wrapping it up
UT’s are a key part of the cryptocurrency space and can provide some excellent benefits and services to the holders or users. Legally speaking, UT’s are not intended to be investments. However, based on the strong value these tokens can provide they have been known to perform well in the cryptocurrency trading markets.