Depending on who you ask, utility tokens promise the holder future access to products and services from the issuer or it is a capital-raising security.

US Securities and Exchange Chairman Jay Clayton vehemently sides with the latter according to his Senate testimony that he has not come across one initial coin offering where the coins in question were not securities.

For investors, the difference between a securities coin and a utility coin is a matter of secondary liquidity.

“If a token is deemed to be a securities token, generally there is a one-year lockup because that token needs to be sold in compliance with our Federal Securities rules and regulations,” said Collen Sullivan, a partner at CMT Digital Holdings an who participated in a panel at the DC Blockchain Summit 2018. “Right now, that security would also need to be traded on a regulated securities exchange… I do not think that the New York Stock Exchange is going to be jumping up and down to list securities tokens anytime soon, but we’ll see.”

However, if a token is deemed a utility token then it likely eligible to trade in the secondary market via an online trading platform or over-the-counter relatively quickly, she added.

Utility tokens also offer a potential broader pool of liquidity, according to fellow panelist Igor Telyatnikov, president at AlphaPoint and who participated on the panel. “If you have a securities token, you can only transfer it to somebody else who is an accredited investor or institution.”

Making sure that only accredited investors can buy or sell security tokens is difficult since many of them rely on open protocols that do not include access-control features to limit their movement.

AlphaPoint and other vendors are working on ways to ensure that tokens do not fall into the wrong hands by implementing smart contracts that bring the regulatory framework to the blockchain.

By implementing what the industry refers to as a regulatory token, or an R-token, a smart contract would provide custodians a whitelist of those who have gone through their anti-money laundering and know-your-customer procedures and are accredited investors and make sure only they could hold such tokens, according to Telyatnikov.

Startup Securrency is taking a different approach, according to fellow panelist Kevin Batteh, a partner with Delta Strategy Group.

“The company locks the token which then can only be moved to someone who has the key to that token’s lock, which means they are another accredited investor” he explained.

In the meantime, tZero and other online digital-trading platform providers are ramping up their alternative trading systems that will specialize in the trading of exempt securities, Batteh added.