A utility token is a token characterized by two features: its fungibility and its purely digital object.
Tokens, data structures created and controlled by smart contracts, are the main mechanism for representing subjective rights in the new digital and decentralized economy. Although some sketches of them appeared in the Bitcoin protocol (the so-called colored coins), in reality, it was the emergence of Ethereum in 2014 that made the appearance and development of this institution possible. Tokens can be fungible or non-fungible, depending on the nature of the right represented. Fungible tokens are those that are identified by their belonging to a genus or class and that do not carry metadata that singles them out from others. The smart contracts that issue them usually conform to the ERC20 standard (in Ethereum) or one of its equivalents (for example, BEP-20 in Binance Chain). The issuing contract carries a table in which each electronic address is assigned a balance in tokens. Each time there is a transmission between two addresses, the amount of the transmission is subtracted from the balance of the source account and added to the destination account.
Utility tokens are fungible in nature, and moreover, as noted above, their object is purely digital. In this sense, in terms of their effects, the rights represented in cyberspace can be classified into two categories:
- Rights existing in the external (physical-legal) world, but represented electronically. Their content, mode of transmission and effects are determined by the ordinary legal system. This group includes, among other assets, security tokens.
- Purely virtual rights, which project their effects exclusively in the field of cyberspace, without the assistance of any outside authority being necessary for their exercise and defense. Often these rights cannot be seized by the ordinary courts. This is the case of rights in rem constituted over virtual parcels of the Metaverse or cryptocurrencies themselves.
Utility tokens would fall into this second category, insofar as they can only be exercised exclusively in cyberspace or parts thereof (e.g. user platforms). Examples of utility tokens include Filecoin or Sia, which grant their holders digital storage rights on remote computers, Golem, which is intended for the rental of computational power, or MANA, the native token of one of the most important metaverses currently in existence, Decentraland. Likewise, voting rights in DAOs are usually linked to the holding of so-calledgovernance to kens, with the principle that each token grants one vote.
In each of these cases, the effects of the token do not transcend beyond the blockchain. However, this does not mean that they are no longer of interest to the law. Cryptocurrencies have been considered as currencies by different resolutions of the Spanish Directorate General of Taxes, so that, in our opinion, any token that grants its holder returns in cryptocurrencies is considered a financial instrument and is subject to securities market legislation. This is what explains that within Spain (and in general, the European Union) often the massive issuance of utility tokens through ICOs, IEOs and IDOs is carried out, using for this purpose the procedures described by the Securities Market Law for the issuance of transferable securities, and subject to its requirements and limitations. It is hoped that the entry into force of the MiCA Regulation will contribute to increase legal certainty in this area and help to protect the interests of investors, who have often been subject to scams over the last decade.
