Utility, payment or security token: how they are classified

Before issuing, selling or holding a token, there is one question that determines everything else: what, legally, is that token? In Switzerland the answer follows FINMA practice, which looks not at the commercial name but at the economic function of the instrument. That classification drives the anti-money laundering obligations, the securities obligations and the potential licensing perimeter. Clarifying it beforehand means building on solid foundations; clarifying it afterwards means making corrections once fundraising is already under way, at far higher cost.

The three reference categories

Swiss practice distinguishes three functional types of token. A single token may fall into more than one category.

• Utility token. Grants access to a blockchain-based service or application. If it already has a real, usable function at the time of issuance, it is generally not treated as a security. If, on the other hand, access is promised for the future and the token is sold mainly as a bet on its value, the substance changes.
• Payment token. Serves as a means of payment or transfer of value. It embodies no rights against an issuer and is not a security, but its issuance and circulation fully trigger the anti-money laundering obligations (AMLA).
• Security / asset token. Embodies financial rights: a participation, a dividend, a share of debt, a right to a cash flow or to an underlying asset. It is treated as a security, with the corresponding prospectus and conduct obligations.

The test is function, not label

The most common mistake is to reason by name: “we call it a utility, so it is a utility.” It does not work that way. A token sold with the promise of a return, a buy-back at an increasing price or a share of revenue is, in substance, an investment token — regardless of the label chosen in the whitepaper. Classification looks at the rights actually conferred and at the way the token is offered to subscribers.

Hybrid tokens and evolution over time

Many real-world projects are hybrid: a token may have a use function and, at the same time, embody a financial right. In that case the obligations of the categories involved are cumulative. There is also the time dimension: a token sold in a pre-sale, when the platform does not yet exist, tends to be perceived as an investment instrument; the same token, once the service launches, may become purely functional. Classification must therefore be verified at the relevant point in time, not once and for all.

Why classification determines the obligations

Concrete consequences follow from the category:

1. Anti-money laundering. Payment tokens and, more generally, anyone providing payment, custody or exchange services fall under the AMLA: subscriber identification (KYC), monitoring, rules on transfers. These safeguards must be managed through a supervised financial intermediary.
2. Security. Security tokens entail disclosure obligations towards investors and conduct rules in the placement.
3. Licensing perimeter. Custody on behalf of third parties, intermediation and placement with the public are regulated activities.

Where it goes through an authorised partner

Activities subject to authorisation cannot be improvised: financial intermediation and AML safeguards, custody on behalf of third parties, and the placement of security tokens with the public require a supervised entity. The rule is clear: regulated activities go through an authorised partner. SIH ONE handles structuring and advisory — token classification, legal opinion, corporate structure, whitepaper, tax and accounting coordination — while activities that require a FINMA/SRO authorisation are carried out through authorised partners, unless and until the perimeter is formalised differently.

The correct sequence

A serious project starts from classification and builds the whitepaper, the safeguards and the structure on top of it. Where the perimeter is not obvious — and this is the norm in hybrid cases — a legal opinion is produced that captures the rights conferred and the applicable category. It is the document that banks, partners and investors will ask to see.

This content is informational and does not constitute legal, tax or financial advice. Crypto practice evolves: every token must be assessed on its specific facts.

Want to understand how your token is classified before issuing it? We start from the economic function and build the correct perimeter, with the right partners where authorisation is needed. Let’s talk.