Regulators Are Slowly Starting to Get It: Utility Tokens Are Real

Various regulatory authorities around the world are opening up to the idea that, when tokens have a clearly functional role within a blockchain network, it's better to manage them with existing consumer protection and anti-money-laundering laws than with burdensome securities regulation.

That divides tokens into three categories: payment tokens, utility tokens and asset tokens, with only the latter being subject to securities laws.

Are developing regulatory frameworks for tokens that would promote blockchain innovation while preserving their status as trusted domiciles for foreign financial institutions.

Wyoming's state legislature passed legislation defining utility tokens as a new asset class.

Mohanty told me he sees six or so of the world's more important regulators coming to a broad agreement on utility tokens and on what distinguishes them from payment and security vehicles.

There's a need, for example, to define pressing questions about what level of platform functionality, and when, a token must have to earn exempt utility status.

Beyond the securities laws exemptions, regulators should agree on strategies to apply existing consumer protection laws to ensure that ICO issuers are still held to account for the promises they make to people who put money into their token pre-sales.

Some have forcefully argued that carving out explicit legislative definitions of a utility token - a la Wyoming - overly constrains innovators to those definitions and creates contradictions across jurisdictions.

There's a still a lot of work needed to improve and scale blockchain technology and to foster broad confidence among future buyers of crypto tokens.

Encouraging the expansion of utility token models is a worthy goal, one that's much harder to achieve if the burdens of securities laws were to be imposed on all those who create them.