Challenges of Using Utility Tokens

Aside from regulatory challenges, technological and market challenges are associated with the use of utility tokens.

One technical challenge involves transaction fees. Because many utility tokens are ERC-20 tokens running atop the Ethereum blockchain, Ether gas fees can sometimes get very high. As more people vie for space in the next block, they bid up gas prices, making it more expensive for everyone to make any transaction on the Ethereum network.

Like most altcoins, utility tokens can be used as vehicles for financial speculation. Depending on the purpose of the token, this could raise issues. If a certain dollar amount of tokens is required for users to do something on a network, and the dollar value of the token fluctuates wildly, users may struggle to anticipate how many tokens they need. This is why some utility tokens are stablecoins or coins designed to maintain a 1:1 ratio with another asset, most commonly a fiat currency like the US dollar.

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