Ever since the tokenization has emerged, numerous companies decide to issue their assets virtually. There are many types of cryptocurrencies categories and one of them are utility tokens. They provide a specific utility benefits and can be earned and used in different ways. Why is utility token so important for some companies?
A contract with a “if-then” scenario
Utility tokens are a type of cryptocurrencies that are available on exchanges and tokenization platform. As its name suggests, utility tokens are utility carriers within blockchain system. The price of a single token depends on the supply and demand. The token may function as a reward or a bonus in decentralized systems. They function as access keys to various functions and can be beneficial for the companies that decide to issue such tokens.
Key features of utility tokens
Utility tokens have not been designed to be a real-world medium of exchange. Each project can release utility tokens on smart contract blockchain to grant users access to some exclusive features:
- It can be applied as a payment method to purchase goods or services at a special price or discount. Among many crypto or blockchain-based companies, utility tokens are the most popular type. Nowadays, most cryptocurrency exchanges allow its users to pay fees in utility tokens.
- Serve as loyalty points. Blockchain market is the place where loyalty points can be purchased or traded. Many companies decide to tokenize their loyalty plans so the utility tokens can be widely used in decentralized motivation systems. An example? If someone runs a social channel where people can post content that can be monetized through advertisements and data collection, the owner can enable users to apply utility tokens and exchange them for specific bonuses.
- Can be traded freely. Unlike security tokens, utility tokens does not reflect a share of company’s stock but rather serves as a necessary tool in order to use products or services. Utility tokens do not represent an investment contract and there are no legal restrictions when it comes to trading.
Primary uses of utility tokens
There are many ways to use utility tokens, but the most popular involve:
- voting – utility tokens give the users the right on upcoming improvement proposals on dApp (decentralized applications). In this case it is known as a governance token.
- gaming – there are numerous games based on a blockchain where utility tokens can be used in order to buy in-game items. Such tokens also serve as a “play-to earn” mechanism.
- tipping – there is a built-in tipping mechanism in dApp. Utility tokens may influence the ranking of comments on the main page of dApp’s social media.
Utility tokens cannot be bought for price speculation, as it is not the purpose of this cryptocurrency. They serve a specific function in Web3 ecosystem that is slowly expanding. From voting, through tipping, gaming and transaction fees – utility tokens have been designed to be used on their respective protocols.
Press releases or guest posts published by Wealth Growth Insights have sent by companies or their representatives. Wealth Growth Insights is not part of any of these agencies, projects or platforms. At Wealth Growth Insights we do not give investment advice and encourage our readers to do their own research.
