Funding through token issuance: How companies raise capital, without bank loans or traditional equity financing

Bank financing is becoming more restrictive and traditional equity financing is often costly. At the same time, companies are looking for ways to combine capital raising, customer loyalty and digital business models more effectively. Token issuance opens up new opportunities for companies at this intersection. Success depends on a clear distinction between utility tokens and security tokens from an economic, regulatory and distribution perspective.

Key points at a glance

• Token issuance opens up financing options for companies beyond bank loans and traditional equity investments, combined with customer loyalty and a digital ecosystem.
• Utility tokens primarily provide access to products, services or ecosystem benefits. They can be issued faster, subject to less stringent regulation and can be listed on major global crypto exchanges. Security tokens primarilyrepresent an investment interest. They are used when capital appreciation is part of the investment narrative.
• Often an attractive combination: a dual-token model – security tokens for the investment component, utility tokens for usage and community.

Why token structures are becoming relevant for businesses

Growth requires capital. However, traditional financing channels have become more restricted. Companies are increasingly looking for ways to combine financing, customer loyalty and digital business models. This is precisely where token issuances come in: they combine capital raising with benefits such as usage, membership and community logic in a single instrument. The financing element must be carefully structured to achieve the financing objective in harmony with customer loyalty and the digital ecosystem.

Token structures are no longer just a topic for crypto start-ups. Companies in the property, fund, commodities, logistics, manufacturing, wholesale and e-commerce sectors are using them to support their core business model without being financial institutions themselves.

Utility Tokens vs Security Tokens: Why the Distinction Matters

What matters is not the name of the token, but its economic function. If the primary focus is on usage, it will generally qualify as a utility token. If the focus is on ownership rights, returns, capital appreciation or equity expectations, it is a security token with significantly higher regulatory requirements.

This classification should be the starting point for structuring, not the end point. It determines the distribution channel, timeline, costs and marketing scope of the entire issuance.

Overview: The distinction in practice

For a detailed legal analysis – including references to MiCAR, MiFID II and the Prospectus Regulation – please see our in-depth article:  Utility Tokens vs Security Tokens: Understanding the Regulatory Distinction. 

What Financing Function Does a Token Fulfil in Practice?

Utility token: when the focus Is on utility

A utility token can be used economically as a digital voucher for future services – such as platform usage, service quotas, premium features or exclusive access. This converts future demand into current liquidity – without a bank loan, without issuing company shares and without debentures.

The marketing focus is on future usage, not on expectations of value appreciation. Economic value growth is nevertheless possible: if the platform develops successfully and demand for its services rises, this can be reflected in a higher market price for the utility token.

Listing advantage: Utility tokens can be listed on major global crypto exchanges. This creates a liquid secondary market. This is particularly attractive to token holders, as it allows them to access liquidity through the secondary market if needed. Security tokens, by contrast, are currently tradable on only a few regulated trading venues; secondary market options are significantly limited. However, given the growing number of large-scale issuance projects involving real-world assets (property, commodities, IP rights), it is to be expected that exchange options in this area will also develop sustainably.

Security tokens: when the investment aspect is paramount

If the marketing narrative is to include the idea that acquiring the token offers investment potential, returns and capital appreciation for the investor, the token should generally be structured as a security token.

This is more complex, but is generally not prohibitively expensive: structures have now been developed that make the issuance process straightforward even for non-financial companies.

A tried-and-tested approach is the phased issuance process: in an initial public offering, use is made of prospectus exemptions (e.g. minimum denomination, qualified investors – see Utility Tokens vs. Security Tokens:  Understanding the Regulatory Distinction, whilst a prospectus is drawn up and submitted for approval in parallel. Once the prospectus has been approved, the token can then be marketed to retail investors across Europe. This combines early liquidity with subsequent widespread distribution.

When is the dual-token structure beneficial?

Pure utility or security structures often reach their limits in practice. The dual-token model clearly separates both functions:

• The security token reflects the investment and financing logic.
• The utility token provides access, usage rights and customer engagement within the ecosystem.

This allows different economic objectives to be mapped within a consistent regulatory framework – without diluting the respective function.

➤ Further reading for legal professionals: For information on the regulation of utility tokens and security tokens, see Utility Tokens vs Security Tokens: Understanding the Regulatory Distinction. 

FAQ’s

Do I need BaFin approval for a utility token?

No. It is sufficient to submit the crypto-asset white paper to BaFin at least 20 working days prior to publication (Art. 8(1) MiCAR). The white paper not subject to formal approval.

How much does a token issuance cost?

As the technical provision of tokens is now largely standardised, the main costs arise from the preparation of the white paper for the utility token and a prospectus or offering memorandum for the security token.

Can a utility token be classified as a security token at a later date?

Yes. What matters is not the label, but the actual function of the token (‘substance over form’). A utility token may be reclassified if its investment characteristics become the dominant feature, for example through the way it is marketed. Reclassification may result in prospectus and MiFID-related requirements becoming applicable.

Can I distribute tokens across the EU?

Yes. MiCAR white papers and approved prospectuses (MiFID II) are generally eligible for passporting across all countries of the European Union.

What is the difference between a white paper and a prospectus?

The MiCAR white paper is only filed, not approved. The prospectus for security tokens must be approved by the authorities and is significantly more comprehensive.