Although most of the tokens issued during an ICO are technically similar, their use can be separated into two categories:
- Utility tokens
- Security tokens
When Ethereum launched its sale of Ether, they promised that those tokens would be utilized as a means of payment for using the Ethereum platform to create an application. This underlines that Ether is a token that enables its owner to use the platform, thus the product. In this fashion, Ether is a utility token.
When the DAO launched its sale of the DAO token, they promised that those tokens would be utilized as a voting right for further-financed projects and as a profitable share. The tokens would indeed provide financial returns to the owner resulting from the DAO’s profits. In this fashion, the DAO token was a security token.
The distinction between the two comes from...