With token economics being a vital part of the cryptocurrencies, it is imperative to be aware of the different types of tokens. These tokens include security tokens and utility tokens.
Utility tokens denote app coins or user tokens, they are not designed to be investments. Whereas, a security token is a digital asset and it derives value from an external trade-worthy asset. Thus, security tokens are subjected to rules and regulations by concerned authorities. A failure to fulfill on the terms can lead to severe consequences which include potential derailment of the project. Utility tokens, on the other hand, are not subjected to any rules and regulations.
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The application of a utility token is confined to trading within the ICO economy, but security tokens can offer a vast array of applications if startups go by the book and abide by all regulatory requirements.
It is easier to issue security tokens rather than launching token sale offering utility tokens. However, as security tokens are regulated thus limited on who can invest in them and how they can be traded. Subsequently, the liquidity of such tokens is drastically reduced. Utility tokens, although not designed for profits, may grow in price and thus reap profits in future.