If you have ever been to an arcade, you know what a utility token is. You put your dollars in the change machine and you get out those brass coins that are somewhere between a nickel and a quarter in size. Their only use is for playing the games at the arcade. You do not buy them in hopes of reselling them for a profit in a secondary market. You buy them so that you can access certain goods or services. These are tokens with a specific use, also known as utility tokens.

But what if the arcade’s founders encouraged you to buy their tokens not only for the special goods and services they can access, but also by enticing you with their potential resale value? What if they told you that they had not built the arcade yet, but that you can put in money to help them do so, that you will receive their tokens in return, and that those tokens can be used to play the arcade games, but they might also appreciate to be worth significantly more on the secondary market than what you paid to get them? Are these really still just utility tokens, or are they also securities? What regulations govern them? And what risks might they pose? These are essentially the puzzles created by the advent of utility tokens in the world of digital currency (or cryptocurrency).

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