The utility sector is a popular investment opportunity for many traditional investors — especially during times of elevated inflation.
Electricity, water, sewage, and natural gas are the backbone of society, making them a quintessential part of any investor’s holdings. However, utility isn’t only found in the traditional stock market.
Meet crypto utility tokens — cryptocurrencies that power blockchains and decentralized applications.
Below, you’ll learn about crypto utility tokens and how they open the door to special rights in the crypto ecosystem. From product access to trading fees, utility tokens provide a new layer of value for long-term cryptocurrency investors.
Utility tokens are specific types of coins that give users the ability to transact on a given network.
In the most basic sense, utility tokens unlock the platform's special features, such as network access. However, developers have devised many use cases for utility tokens, making them an integral aspect of the blockchain ecosystem.
A popular question in crypto is determining whether a cryptocurrency is a security or utility.
Crypto utility coins are not considered security tokens because they do not give ownership rights to the platform and typically don’t offer dividends. Instead, utility tokens give users the usage rights to use a product or service.
However, it’s important to note that the regulatory landscape may quickly change, making due diligence necessary when investing in crypto utility tokens.
Crypto utility tokens offer many possibilities to developers, users, and investors. Below, we’ll discuss the benefits of crypto utility tokens and how they power the crypto ecosystem.
One of the most popular aspects of utility tokens is their ability to grant access within a given blockchain or decentralized application.
A prime example is seen with Filecoin’s FIL token — a utility token that gives holders the right to use the network. Filecoin is a decentralized storage network that allows anyone to upload and store files on the blockchain.
Simply put, FIL is necessary to access the Filecoin blockchain, aligning long-term incentives for all participants.
Another example of utility tokens enabling exclusive access is Decentraland’s MANA token. Decentraland’s metaverse is only accessible to those who hold the MANA cryptocurrency. From buying plots of land and other digital assets, MANA is the necessary in-game currency that powers Decentraland’s virtual world.
All decentralized blockchains and applications require dispersed nodes to validate each and every transaction.
Although the majority of node operators are good — malicious nodes exist. So, how does a blockchain network protect itself from node operators operating in bad faith?
The answer lies in utility tokens, node operator compensation, and the ability to slash rewards. Let’s use Chainlink for this example, where we’ll show how Chainlink’s utility token LINK provides ample protection from bad actors.
Chainlink is a decentralized oracle network that aggregates on and off-chain data. In other words, Chainlink aggregates specific data sets, such as the current price of Microsoft stock, the weather in Los Angeles, or the Powerball winning numbers, and onboards it into the blockchain.
Once compiled, node operators must verify data. As thousands of nodes verify data amongst each other, nodes with malicious or incorrect information are punished in the form of slashing.
All node operators must stake LINK tokens, and incorrect or malicious activity removes (slashes) a certain amount of LINK coins from the node operator. Although the LINK token provides other benefits, protecting the network from bad actors is a core utility of the Chainlink network.
One of the most notable benefits of utility tokens is their ability to provide governing rights within a blockchain network or application.
When you buy Apple stock or government bonds, they do not give you a direct voice in governance. You may have access to dividends as a shareholder, but the right to vote in a Fortune 500 company’s next board meeting is non-existent.
Since crypto utility tokens exist in decentralized networks — closed-door board meetings are a thing of the past. Instead, utility tokens give every investor a voice through a weighted vote.
Utility tokens that enable governing rights give a whole new meaning to investing for the long term. Every vote counts, making utility tokens an essential part of the crypto ecosystem.
One of the most significant benefits of investing long-term in utility tokens is their ability to power blockchain networks.
For example, Ethereum requires a small amount of gas per transaction. Without the fee, users cannot perform a transaction, thus making the ETH token the backbone of the network.
In other words, the utility of ETH is straightforward: you cannot use the Ethereum network without the ETH token. From an investment standpoint, there’s nothing more exciting than a crypto token that must be used to power the platform.
When you or your broker buys or sells stock — you’ll incur trading fees paid in fiat.
Even if you’re investing long-term, trading fees add up over time. Alternatively, crypto developers have devised a novel way to reduce the burden of trading fees with the help of utility tokens.*
Crypto exchanges, such as Binance.US, allow investors to use Binance’s native token (BNB) to discount trading fees. Depending on the crypto exchange, utility tokens that pay for trading fees may reduce the cost from 10-25%.
* Trading fees may be higher through the blockchain compared to trading fees purchasing or selling securities in a brokerage account.
Once you’ve done your due diligence on various utility tokens, such as ETH, LINK, MANA, and FIL — it’s time to consider whether or not they are a worth investment to add to your portfolio.
However, learning the ropes of using cryptocurrency exchanges can be daunting for beginners. If you’re used to stock brokers or traditional investment advisers — using a crypto investment adviser can help you navigate the world of long-term crypto investing.
With a crypto investment adviser like Shrimpy, you don’t have to worry about buying, selling, and storing utility tokens. From curated utility tokens to a tailored-fit approach, you’ll finally be able to invest in crypto utility tokens with ease while letting Shrimpy handle all of the buying, selling, and rebalancing.
Shrimpy is providing an endorsement of Shrimpy Advisory. Shrimpy and Shrimpy Advisory are affiliated companies. A conflict of interest exists because Shrimpy Advisory will be compensated if a client utilizes Shrimpy Advisory’s services.
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