How Does the Concept of “Functional Network” Impact the Classification of a Utility Token?

The "functional network" concept suggests that once a decentralized network is fully operational and its token is used primarily for its utility rather than for speculative investment, the token is less likely to be classified as a security. The SEC has indicated that a token on a functional network, where purchasers are motivated by the token's consumptive use, may no longer satisfy the "expectation of profits from the efforts of others" prong of the Howey Test.

This transition from a fundraising-stage security to a functional utility is crucial for regulatory compliance.