What is a Utility token, Features, and Challenges Associated With It

• The ERC-20 standard is the most widely used standard for Utility tokens.
• The holders of the Utility tokens enjoy exclusive services from the company.

What is Utility Token

The basic definition of a Utility token is that it is a token released by any company for its users that does not have some monetary value. It can only be used by the company’s users to access the company’s services, sometimes at discounted rates.

In terms of Decentralized exchanges, a utility token also serves a similar purpose. Decentralized applications provide holders with access to exclusive features.

These tokens are commonly issued during Initial Coin Offerings and Initial Dex Offerings.

The people who are the holders of the utility tokens can enjoy the following benefits:

1. Specific services that are only available to utility token holders.
2. Discounted fees.
3. Voting rights on the proposals of some changes in the decentralized application.

The most widely used token standard for Utility tokens is ERC – 20 token.

ERC -20 token

ERC -20 token is a fungible digital token that runs only on the Ethereum blockchain. The complete form of the ERC-20 is “Ethereum Request for Comments.”

ERC-20 tokens are commonly used for exchanging digital assets via smart contracts. 

The common characteristics of the ERC-20 tokens are:

Fungible:

They are interchangeable, allowing units of ERC-20 tokens to be easily exchanged with one another.

Gas Fees:

The users of ERC-20 tokens have to pay gas fees for transactions.

ERC -20 tokens mostly have a fixed supply on the network.

Popular examples of Utility Tokens

BAT(Basic attention token)

This token can revolutionize blockchain-based digital advertising by providing advertisers with a better return on their investment, that is, the money they spend on ads.

This feature is currently implemented on the Brave browser, where users receive BAT rewards for watching privacy-preserving ads. This feature allows advertisers to play ads directly to the tarted audience and maximize their profits.

GLM(Golem)

This project was launched on April 28, 2016. It is a decentralized computational network. It helps in distributing the redundant computation powers to the users who need it. It created a peer-to-peer network, and users can buy or sell computing powers according to their needs.

0x (ZRX)

0x is a protocol that allows users to trade ERC -20 tokens on different blockchains, and that too without relying on centralized intermediaries. 0x was founded in 2016 by Will Warren and Amir Bandeali. In its initial ICO offering, the platform raised $24 million, and prominent investment firms invested money in it.

The challenges associated with Utility Tokens

Any natural mechanism cannot increase the value of Utility tokens.

The tokens do not have any actual values, so if the project fails, the tokens will be of zero value.

The founders and the core team can make significant decisions. This means the opinion of the token holders does not have any value. It is often seen that utility token companies are unable to receive the necessary capital for their development, which creates a liquidity problem for the company.