What are security tokens and utility tokens in cryptocurrencies?

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Security tokens and utility tokens are both types of cryptocurrencies, but they serve different purposes and have distinct characteristics.

Security tokens represent ownership in an asset, such as equity in a company, real estate, or other tangible assets. They are subject to securities regulations and provide investors with legal rights and protections. Security tokens are typically issued through Security Token Development processes and offer investors the potential for financial returns, dividends, or other benefits based on the performance of the underlying asset. Examples of security tokens include tokenized stocks, bonds, and investment funds.

Utility tokens, on the other hand, are digital tokens that provide access to a product or service within a specific ecosystem. They are not designed as investments and do not inherently represent ownership in any asset. Instead, utility tokens are used to facilitate transactions or access features within a blockchain network or decentralized application (dApp). For example, utility tokens may grant users access to a decentralized marketplace, voting rights within a governance system, or discounts on platform fees. Utility tokens are typically created through Initial Coin Offerings ( ICOs) or Token Generation Events (TGEs) and are not subject to securities regulations.