Concept

A native utility token is a native token (generally, a token) developed and utilized within a specific blockchain ecosystem (its own native environment). These tokens are designed to serve a number of ends, specifically facilitating operations and enhancing user experience within the native environment. Native utility tokens can also be used as cryptocurrencies for payment and reward extension within the native network. Unlike other tokens (non-native tokens) that might operate across different platforms, a native utility token’s role solely depends on its parent blockchain. Moreover, native utility tokens can carry additional benefits in the form of incentives to holders, such as discounted trading fees on exchanges, access to exclusive services, or enhanced features within the ecosystem/ platform. These incentives are offered to encourage participation and investment in the respective blockchain, further supporting its development and wider adoption.

Role

Native utility tokens represent a tokenized form of a utility such as computation power, cloud space and file sharing (of course, among many others). The underlying service is a programmable blockchain asset. These tokens provide a kind of consumer membership and access to services or other scarce resources. This mainly involves pre-selling a specific service and using the sale proceeds to build the needed structure or to further develop and improve existing structure. Therefore, native utility tokens constitute an integral part of the blockchain infrastructure, providing a mechanism for multiple aspects and functions such as processing of transaction fees, establishing a level of governance, and other utility functions that support the ecosystem’s growth and ability to continue. However, the set of utilities and benefits can vary widely from one platform to another, depending on the project and reflecting its unique needs and objectives.

Example

In addition to their role as cryptocurrencies, these native utility tokens provide consumptive rights on services and products through a blockchain-based platform. For example, the blockchain Ethereum operates on its native utility token known as ether. Ether is used for payment by users seeking to execute smart contracts, pieces of code programmed on the its blockchain for multiple purposes- e.g., creating new tokens, fund transfers, pre-sale book building, sales execution, token distribution, and imposing certain restrictions or conditions on token transfers. Therefore, ether’s intrinsic value depends on the value of services provided and functions executed by the Ethereum blockchain.

Another example: on the EOS blockchain, a native utility token can be used to create certain types of coins- e.g., digital asset-backed stablecoins such as EOSDT. In this respect, the token can play a role in maintaining stable transactions within the ecosystem. Stablecoins are essential in establishing price stability by means of a reserve asset, such as fiat currency or another cryptocurrency, reducing the volatility typically associated with digital currencies. In contrast to unbacked (no back) cryptocurrencies (Bitcoin or Ethereum), stablecoins provide further protection, and hence have a certain protection mechanism against rampant volatility and the side effects of speculation. As a result, these coins are more stable and less volatile their unbacked equivalents. Tether (USDT), the first stablecoin, was introduced in 2014 and at once became a stable form of currency for market participants seeking a more reliable substitute for the volatile cryptocurrencies.

Synonyms

Native utility token is abbreviated as NUT.