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How Do Utility Tokens Work?

how do utility tokens work
Date
21/05/2024
Written by
Danijela Tomić
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The crypto market is generally divided into Bitcoin and altcoins. While some altcoins serve real purposes, others are purely speculative. A third category, utility coins, have specific use cases, hence the name "utility tokens." Although some of you may have heard of them, many don't understand how utility tokens work and our goal for today is to simplify this concept for you.

How Do Utility Tokens Work, Simplified

Utility tokens serve specific purposes within a project or ecosystem. Like any other token, they can be bought and sold, but their real value lies within the ecosystem itself. Think of utility tokens as access keys to various features and services, governed by smart contracts. Typically, they grant access to products and services, and without them, or without a certain amount, access is restricted. Increased demand for these services or products reduces supply and drives up the token's price.

Utility tokens can also be used for other purposes, such as paying transaction fees, granting voting rights in a DAO, or serving as collateral. For instance, a utility token might be integral to a news outlet, where paying for a subscription fee with the tokens allows you to receive the latest news directly in your inbox.

Utility tokens can also improve scalability, increase investment opportunities for individuals through asset tokenization, and provide greater regulatory clarity, making crypto a safer investment environment. Overall, utility tokens can ignite wider adoption by clearly demonstrating the clear and tangible benefits to users.

Here's a related article on the differences between utility and security tokens that you may find interesting, too.

A Real Example of How Utility Tokens Work

A good example of a utility token is LFF, issued by Lykke. Launched recently, LFF provides access to various products and services tailored for both individuals and institutions.

Let’s say you’re a crypto trader. You know the crypto market is largely influenced by global news and events, and timing is everything. That’s why we write our newsletter - to keep you informed and help you make better decisions. Speaking of decisions, we have another tool to assist you: ATTMO. This decision-support tool provides signals that give you a better idea of market movements. LFF can be used to pay for ATTMO signals, demonstrating how utility tokens work.

Moreover, LFF can be used as a form of payment for our products and services tailored for startups, businesses, banks, and more. Our offerings include BOSQUET, a white-label crypto wallet; CALYX, a self-custody solution; as well as market-making and liquidity provision services, among others.

And if you need some more ideas, we've reviewed the top 7 utility tokens in 2024 in this article.

Summary

Utility tokens are versatile tools that enhance user engagement within their ecosystems and drive broader adoption by clearly outlining the benefits of ownership. Their potential extends beyond the crypto industry, with applications in sectors like healthcare and energy. And, if you have a clear idea of how do utility tokens work, and if you think Lykke's products, services, and solutions would serve you, get your portion of LFF right now.

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