# What Are the Regulatory Implications of Classifying a Token as "Fee-Sharing" versus "Utility"? ▴ Learn

**Published:** 2025-11-16
**Categories:** Learn

---

## What Are the Regulatory Implications of Classifying a Token as “Fee-Sharing” versus “Utility”?

Classifying a token as "fee-sharing" (granting a share of protocol revenue) significantly increases the likelihood that it will be deemed a "security" by regulators, particularly under the US Howey Test. Securities are subject to strict registration and disclosure requirements.

A pure "utility" token, whose value is tied only to its consumption for a product or service, has a better chance of avoiding security classification, though this distinction remains legally ambiguous and context-dependent.

How Are Stablecoins Typically Classified under Current Regulatory Frameworks?

Name a Notable SEC Enforcement Action Based on the Howey Test for an ICO

How Does the Decentralization of a Network Impact the Howey Test’s Application?

How Does Decentralization Affect a Token’s Classification under Howey?

## Discover More

- 
### [Compare the Counterparty Risk on a Centralized versus a Decentralized Options Exchange](https://crypto.greeks.live/learn/compare-the-counterparty-risk-on-a-centralized-versus-a-decentralized-options-exchange/)
![This high contrast macro photograph captures an abstract mechanism juxtaposing smooth, pale ivory polymer against high gloss black substrates supporting a translucent, cyanoidal glass orb. The composition suggests the delicate interplay inherent in decentralized finance protocols and exotic derivatives. The structural elements evoke mechanical execution mechanisms, possibly symbolizing the robust infrastructure underlying decentralized autonomous organizations DAO governance. The reflective sphere acts as a visual metaphor for novel asset class valuation or perhaps volatile spot price discovery within blockchain settlement layers. Spring-like metallic filaments hint at underlying leverage mechanisms or the constrained movement of liquidity pools essential for maintaining market stability against systemic risk exposure and continuous automated market maker AMM rebalancing in Layer 2 scaling solutions.](https://crypto.greeks.live/wp-content/uploads/2025/10/Macroscopic-Examination-of-Algorithmic-Trading-Apparatus-Bearing-a-Quantum-Entanglement-Proxy-Sphere.jpg)

CEX risk is centralized (exchange default); DEX risk is decentralized (smart contract security and collateral).

- 
### [What Is a Fungible Token versus a Non-Fungible Token (NFT)?](https://crypto.greeks.live/learn/what-is-a-fungible-token-versus-a-non-fungible-token-nft/)
![This rendering displays two highly polished, spheroidal half-structures bisected along an axial plane revealing internal complex mechanisms connected by a central metallic spindle suggesting synchronized coupling. The exterior exhibits contrasting hues a pale beige and a vibrant cyan indicative of distinct asset classes or counterparties in a synthetic derivative agreement. The intricate internal components feature densely packed circular apertures resembling high-frequency ledger validation nodes or embedded smart contract logic facilitating atomic swap settlement. This visualization conceptually models the internal workings of a collateralized debt position CDP or a structured product where tokenized assets secure obligations within decentralized finance DeFi protocols leveraging option netting techniques for risk mitigation against volatile crypto price action. The symmetry implies balanced risk exposure in a perpetual futures contract architecture.](https://crypto.greeks.live/wp-content/uploads/2025/10/Bifurcated-Tokenized-Asset-Mechanism-Revealing-Underlying-Collateralized-Derivatives-Structure.jpg)

Fungible tokens are interchangeable (like Bitcoin); NFTs are unique and represent distinct assets.

- 
### [What Are the Trade-Offs between Using a Median Price versus an Average Price?](https://crypto.greeks.live/learn/what-are-the-trade-offs-between-using-a-median-price-versus-an-average-price/)
![The visualization displays a mirrored, high-fidelity rendering of complex mechanical apparatus set against deep black, suggesting vacuum or non-linear space. Central components feature glowing cyan energy cores enveloped by opaque toroidal structures, evoking superconducting quantum circuit dynamics crucial for high-frequency cryptocurrency arbitrage. This conceptual design mirrors the synchronized settlement of complex financial derivatives like exotic options or structured products contingent on underlying blockchain volatility surfaces. The structure suggests dual independent nodes facilitating atomic swaps or cross-chain interoperability mechanisms fundamental to secure decentralized finance DeFi infrastructure design for managing counterparty risk exposure in perpetual futures contracts. The precise symmetry hints at perfectly hedged delta-neutral strategies essential for sophisticated market making protocols and liquidity provision across AMMs.](https://crypto.greeks.live/wp-content/uploads/2025/10/Symmetric-Quantum-Entanglement-Propulsion-Architectures-Modeling-Decentralized-Finance-Derivatives-Exchange-Execution.jpg)

Median is more resistant to outliers and simpler; average (VWAP) better reflects market liquidity but is slightly more susceptible to coordinated manipulation.

- 
### [Can a Utility Token Evolve into a Security Token over Time?](https://crypto.greeks.live/learn/can-a-utility-token-evolve-into-a-security-token-over-time/)
![A hyper-realistic rendering depicts a perfect, refractive glass sphere precariously balanced atop a thin, dark metallic plane intersecting sleek, teal infrastructure, symbolizing market fragility. This composition mirrors the delicate interdependency within decentralized finance DeFi collateral management, where underlying asset volatility dictates derivative pricing mechanisms. The sphere represents implied volatility or the Greeks delta hedging execution against sudden capital flow shifts in perpetual futures contracts. The smooth, curvilinear structures suggest robust platform architecture underpinning synthetic asset creation and automated market maker AMM liquidity provisioning under high-frequency trading HFT stress tests. This scene encapsulates the razor-thin margin for error in structured product payoff realization derived from complex options pricing models.](https://crypto.greeks.live/wp-content/uploads/2025/10/Refined-Glass-Sphere-Equilibrium-on-Digital-Asset-Curve-Illustrating-Stochastic-Volatility-Modeling.jpg)

Yes, classification can change based on network decentralization and the continued reliance on the issuer's efforts for profit.

- 
### [What Are the Regulatory Implications of Issuing a Security Token?](https://crypto.greeks.live/learn/what-are-the-regulatory-implications-of-issuing-a-security-token/)
![The polished ivory and deep cerulean structure suggests a self-contained secure enclave analogous to zero-knowledge proof implementation safeguarding digital asset portfolios. The surrounding annular plane evokes the orbital dynamics of planetary rings mirroring continuous automated market maker liquidity provision or synthetic asset settlement layers. This configuration visualizes robust collateralization shielding against adverse price action inherent in high-frequency crypto arbitrage or complex perpetual futures contract netting. The centralized lens element implies transparent yet protected data oracle feeds crucial for reliable option pricing models and real-time risk parameter adjustments in DeFi yield farming strategies. It represents layered security architecture over on-chain derivatives infrastructure.](https://crypto.greeks.live/wp-content/uploads/2025/10/Planetary-Ring-Structure-Encapsulating-a-Spherical-Unit-Representing-Decentralized-Finance-Volatility-Hedging.jpg)

Requires registration with financial authorities or qualifying for an exemption, involving extensive disclosure, reporting, and transfer restrictions.

- 
### [Can a Single Token Possess Both Utility and Security Characteristics?](https://crypto.greeks.live/learn/can-a-single-token-possess-both-utility-and-security-characteristics/)
![Concentric and overlapping circular forms suggest aperture dynamics, perhaps representing the execution path in decentralized finance order books. The stark black background contrasts sharply with layered gradients of deep cerulean and cool cyan, mirroring the inherent risk inherent in leveraged perpetual futures contracts. A diagonal slash of white and translucent teal traverses the composition, symbolizing high-frequency data streams or perhaps the gamma exposure trajectory across option strikes. This visual architecture implies the complex interplay between implied volatility surfaces and realized returns in digital asset markets, specifically referencing the Greeks sensitivity in structured products. The structure hints at the delicate balance required for successful proprietary trading strategies involving exotic derivatives settlement processes within the blockchain ecosystem.](https://crypto.greeks.live/wp-content/uploads/2025/10/Abstract-Visualization-of-Quantized-Volatility-Skew-and-Cryptocurrency-Option-Pricing-Mechanisms.jpg)

Yes, but the investment contract element (security) usually overrides the utility function for classification purposes.

- 
### [What Are the Regulatory Implications of Using ZKPs for Financial Transparency?](https://crypto.greeks.live/learn/what-are-the-regulatory-implications-of-using-zkps-for-financial-transparency/)
![The visual juxtaposition reveals an interface juncture between two distinct material planes a cream-toned upper sheath meeting a teal lower component, separated by a narrow band reflecting intense blue photonic excitation suggesting a critical transmission zone. This graphical assembly symbolizes the complex interoperability required in institutional DeFi infrastructure, specifically modeling atomic swap execution or segregated collateral segregation within regulated crypto derivatives clearinghouses. Observe the flush mounted fasteners indicating secure structural integrity essential for robust oracle integration and managing non-deliverable forwards settlement against fluctuating asset volatility exposure. The metallic lower structure implies underlying hardware or layer-one settlement stability underpinning tokenized synthetic asset management protocols needing high-throughput confirmation for margin calls and delta hedging strategies across cross-chain liquidity pools. This represents robust governance architecture securing complex smart contract state transitions.](https://crypto.greeks.live/wp-content/uploads/2025/10/Precision-Engineering-Interface-Connecting-Tiers-in-Decentralized-Finance-Settlement-Layer-Mechanisms.jpg)

ZKPs allow institutions to meet regulatory transparency and audit requirements using cryptographic proof without compromising customer data privacy.

- 
### [What Is the Concept of ‘Diminishing Marginal Utility’ in the Context of Network Growth?](https://crypto.greeks.live/learn/what-is-the-concept-of-diminishing-marginal-utility-in-the-context-of-network-growth/)
![The composition presents intersecting planes featuring matte surfaces in muted teal and beige, juxtaposed against deep obsidian structures reflecting sharp specular highlights, evoking complex financial modeling. A central spherical node, anchored by a thin metallic stalk, symbolizes a pivotal strike price or governance token equilibrium point within a decentralized autonomous organization DAO environment. This visual tension represents the non-linear dynamics of embedded options exposure within synthetic assets and perpetual futures contracts. Understanding this geometric topology is crucial for navigating volatility surfaces, managing basis risk in cross-chain arbitrage, and optimizing delta hedging strategies against systemic liquidation cascades. The structure suggests the architecture of a multi-layered liquidity pool or stacked collateralized debt positions CDPs.](https://crypto.greeks.live/wp-content/uploads/2025/10/Geometric-Interplay-of-Tokenized-Assets-and-Option-Payoff-Structures-in-Decentralized-Finance.jpg)

Each new user adds less utility than the last one, causing the network effect's rate of growth to slow down.

- 
### [Explain the Concept of “American” versus “European” Style Crypto Options](https://crypto.greeks.live/learn/explain-the-concept-of-american-versus-european-style-crypto-options/)
![This abstract composition illustrates the intersection of tangible asset aesthetics with digital finance instrumentation, suggesting a sophisticated algorithmic trading environment. The metallic, curved surface hints at hardware security modules or advanced vehicular telemetry interfacing with a circular Heads-Up Display element displaying esoteric numerical sequences indicative of strike prices and expiration cycles. Two sharp, translucent cyan prisms suggest volatility skew or hedging strategies applied to perpetual futures contracts. The visual language evokes robust DeFi infrastructure managing complex payoff structures like Asian options or exotic derivatives, emphasizing secure ledger finality and oracle reliability within high-frequency cryptomarket microstructure. Precision modeling underpins implied volatility surface computation for efficient settlement mechanisms.](https://crypto.greeks.live/wp-content/uploads/2025/10/Decentralized-Derivatives-Protocol-Overlay-Abstract-Visualization-of-Quantum-Option-Pricing-Mechanics.jpg)

American options can be exercised anytime until expiration; European options can only be exercised at expiration.

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