In the United States, there is a distinction between a token that is a utility and one that is a security. A utility token could be described as something such as a carnival token, a comic book, or a baseball card. While the market value of the item may go up or down, the fundamental reason for purchasing it (and the way it is advertised) is not directly related to profit-seeking. Someone buys a carnival token to play a game, a comic book to read, and a baseball card to collect.

Many tokens try to position themselves as utilities in order to avoid invoking US securities law which greatly restricts sales and requires formal registration with the SEC along with requirements for other disclosures to investors.

In other cases, ICOs issue a SAFT or Simple Agreement for Future Tokens. The SAFT is absolutely a security and tissuers accept this in order to sell to accredited investors before the launch of the network. Once the network has launched, these SAFT agreements are converted to tokens on the network.

The security versus utility token classification has been complicated by statements from the SEC, that a token can become more or less of a security over time—beginning life as a security or utility and then drifting into the other category. For projects trying to stay on the right side of the law, such fuzzy definitions can be maddening.