Oxford University Law Researchers claimthat in the case of token regulation, no distinction needs to be made between utility and security tokens. Dmitry Boreyko, Paolo Dzhudichi and Guido Ferrarini believe that both types of tokens should be regulated equally.
The classification of tokens usually makes a distinction between tokens for use applications and tokens for investment protection. In the United States, for example, a token has the characteristics of a security (investment contract) if its purchase is considered an investment in a company and must be profitable. Utility coins are not considered to be investments and serve as means of payment for services or products created by their issuers. However, the researchers claim that this separation is not true and that the regulators are not acting correctly.
In their opinion, when the blockchain ecosystem becomes large and fluid, the use token can change type and become, for example, a regular currency. By acquiring the properties of one currency, it can be converted into another cryptocurrency and exchanged directly or indirectly for paper currency. Such a transformation greatly affects the boundaries between investment assets, currencies and assets.
Researchers also mention ICO and IEO as examples. They indicate that issuers are starting to sell large quantities of tokens in advance, long before the ICO and IEO. This indicates that investors consider tokens as marketable investments, and not just as utility tokens. Researchers note that this function equates tokens with the general capital market and financial risks, and therefore regulators must consider all tokens as traded securities.
Currently, in the United States, the sale of securities or security tokens is subject to the strict requirements of federal law. Fines can be substantial in the event of a violation. If regulators start equating utility tokens with securities, the consequences will affect a huge number of crypto companies.