Security Tokens and Tokenized Securities Are Not the Same Thing

Security tokens, however, are struggling amid a lack of regulatory clarity, and the all-too-familiar regulation-by-enforcement approach of the U.S. Securities and Exchange Commission (SEC). To pick an example, starting in 2016 LBRY – a decentralized storage protocol and media service – financed its development through the issue of LBC tokens, which would enable access and engagement once the platform was up and running. For many, these were obviously utility tokens since they enabled use of the service. For the SEC, they were security tokens since their issue financed the project. In 2021 the regulator brought an enforcement action against LBRY. The issuer pushed back, but in November a judge ruled in the SEC’s favor.