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If a developer wishes to create Utility tokens and not Security tokens, what are the conditions it must fulfill? From my understanding, Utility tokens must also be native tokens - meaning the generation of tokens and the launch of the dApp must happen at the same time.

If a developer chooses to not ICO and simply have an airdrop of their tokens at the same time as the launch of their dApp, and future tokens are generated like on Steemit through community actions, will the tokens generated be considered Utility tokens?

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Many Chinese projects airdropped their tokens to users and they had no jurisdictional repercussions because it was distributed freely and everyone had same chances to get them. If the token got value it is mainly because users agree to give it value.

Just precise the function of your token in the whitepaper and make it clear that is had no actual value.

The term security mainly refers to profit seeking entities. In your case, you're giving it for free.

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Hey that's a great question. I've wondered about that myself as we launched our own Blockchain Platform (carmel.io) and it's not so much about whether you're selling the tokens or not. You could definitely sell Utility Tokens. For example, the EOS token is an utility token and they're selling them.

A utility token is essentially a token that can be used for something tangible in your product - not just act as a currency that people trade. Yes, we can trade utility tokens just like security tokens, but what makes them different is the fact that they unlock some specific use case in your product.

Think of a Bitcoin, the ultimate security token. It does not lock any functionality in any product. It's just a form of money, a currreny - ie. a security token.

But think of the EOS token for example. It unlocks bandwidth in the EOS Blockchain. If you own EOS tokens then you can exchange them for bandwidth. That's a powerful example of a utility. So think of bandwidth as the primary utility (value) behind an EOS token.

Or take our Carmel Token as another example. A Carmel Token in our economy represents Learning Value. You can exchange Carmel Tokens in our product for Carmel XP (experience points) which you can unlock through a Proof of Learning mechanism that verifies the fact that you have indeed learned something.

So EOS Token -> Bandwidth. Carmel Token -> Learning.

There's many other examples but the key question to ask is - what's the value behind the token? If you can answer that - ie. if there is a tangible value associated with that token - then my friend, that's a utility token.

Hope that helped a bit. You can read more about our Carmel Token Economy here: https://carmel.io/whitepaper/economy for a lot more info on how we look at the whole concept.

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  • Thank you for the detailed answer and good luck with Carmel. Let's say Carmel tokens can be used to take/buy Carmel courses. If Carmel courses could also be bought with fiat currency, then would that make Carmel tokens to be perceived as a security token? – Able Joseph May 15 '18 at 6:16
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    So you can use Carmel Tokens to buy Carmel Challenges (micro-courses) just as you can use EOS Tokens to buy bandwidth but that is not a typical purchase in the traditional sense. It is a trade within the app economy where you get functionality in return for your tokens. You cannot buy that functionality with fiat, that’s the idea. Here’s another example. Think of leveling up in a game if you reach a number of points. You could buy points with fiat to reach the point where you can level up faster, but you cannot level up with fiat, you need in app points for that. Hope that helps – idancali May 15 '18 at 7:06

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