Security tokens vs utility tokens: what is the difference?

Security tokens and utility tokens differ in the right they give, and the right decides the law.

Security tokens are tokens that meet the test for a transferable security or another financial instrument. ESMA sets three conditions for a transferable security: the token is no instrument of payment, it belongs to a class of interchangeable tokens with the same rights, and it is negotiable on the capital market (ESMA, March 19, 2025). Examples of security tokens are a token with dividend and voting rights, which has features of a share, and a token that pays interest and promises repayment, which ESMA calls "similar to bonds".

Security tokens are used for raising equity and debt, as with a share or bond issue. They work on a ledger like other tokens: a smart contract records holders and transfers, and the issuer can limit transfers to approved wallets. ESMA states that whitelist-only transfers alone do not stop a token from being negotiable. A security token offering (STO) is the sale of new security tokens to investors, and securities law applies to it. In EU law, tokenized securities and security tokens are both financial instruments; What are tokenized securities? explains the overlap.

Under MiCA, a utility token is "a type of crypto-asset that is only intended to provide access to a good or a service supplied by its issuer" (Article 3(1)(9)). MiCAR utility tokens get two special rules. The white paper rules of Title II do not apply to an offer of a utility token for a good or service "that exists or is in operation" (Article 4(3)(c)). If the service does not exist yet, the offer may run for at most 12 months from the publication of the white paper (Article 4(6)).

A stablecoin is no utility token. A stablecoin that references one official currency is an e-money token under Title IV of MiCA, and one that references other values is an asset-referenced token under Title III. A utility token falls under Title II.

If a token has features of both, the financial instrument wins. ESMA's guideline 9 on hybrid tokens says that if a token "displays features of a financial instrument, such nature should take precedence in its classification". ESMA asks supervisors to put the attributes of a token before the label the issuer gave it.

ESMA also marks the other boundary. Tokens for premium content or fee discounts that give no dividends or interest are no transferable securities, and "this reasoning would apply even if such tokens were bought by investors with the expectation of profit". Governance votes on protocol upgrades or fees are no shareholder rights either.

In Germany, BaFin, which has its offices in Bonn and Frankfurt am Main (BaFin), supervises both kinds of token: security tokens as financial instruments and utility tokens as crypto-assets, for which BaFin is the competent authority under section 3 KMAG. In Austria, the FMA is the competent authority for crypto-assets under section 1 MiCA-VVG.

Switzerland is outside the EU and uses its own categories. FINMA's guidelines of February 16, 2018 separate payment, utility and asset tokens. FINMA regards asset tokens as securities. Utility tokens "do not qualify as securities only if their sole purpose is to confer digital access rights to an application or service and if the utility token can already be used in this way at the point of issue". If a utility token works partly as an investment, FINMA treats it as a security. This page gives no legal advice.