What is a Utility Token?

To better understand what a token is, we define it as a digital entity that is linked to an existing cryptocurrency, such as ETH (ERC20), BNB (BEP20), and many others and operates on their blockchain without needing its own blockchain. These tokens are usually created through special smart contracts.💰

✔️A utility token, on the other hand, is a “usable token” designed to serve a specific purpose within a company’s activities and services. Its usage varies depending on the company’s offerings and the value it assigns to the token. For instance, it may serve as a means of payment, allow for discounted purchases of products and services, or confer special status, among other possibilities.

It’s crucial to grasp that a utility token doesn’t represent any ownership stake or shares in the company; it solely represents the utility offered by the company.

The initial offering of a utility token typically takes place through an Initial Coin Offering (ICO), with the token’s price determined by the issuing company. Subsequently, on various markets, the token’s price is determined by market forces, driven by supply and demand.

When a token has a limited supply, much like Bitcoin, increased demand tends to drive up its price. Conversely, if a token can be created without limits, similar to fiat currency, its price tends to decrease regardless of demand.

⚠️‼️However, it’s essential to be aware of the substantial risks associated with purchasing a utility token, particularly during the ICO stage when it remains a concept without practical use.

Utility token buyers should carefully consider and assume all risk factors before making this decision. There is always a possibility that the company may not achieve its intended plans and goals for various reasons, possibly resulting in the loss of your funds.

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