What is a security token?

Security tokens are a digital representation of regulated financial instruments, recorded on a blockchain.

Security tokens are a digital representation of regulated financial instruments, recorded on a blockchain.

Compared to utility tokens, security tokens offer buyers a lot more options in terms of financial rights, including; equity, dividends, profit share rights and much more.

How do security tokens work?

A security token can be considered as if it is a stake, therefore an investment within a company.

Please find a more detailed breakdown here

Utility token vs security token

Utility tokens, or ICO tokens, provide a specific function or service within a projects ecosystem. They are not often considered a security as they lack investor rights or other characteristics of investment.

Security tokens on the other hand, represent equity or debt in an investment. Security tokens can offer direct return of investment value, for example in the form of dividends for stock or interest for bonds and loans as well as other rights such as voting rights. As above, the purchase of security tokens are seen as an investment. Therefore, they are subject to securities regulations.

In Summary

  • Security tokens can represent traditional financial instruments, like stock or bonds, in blockchain but giving equivalent rights
  • Security tokens can follow existing security regulation frameworks
  • Security tokens offer buyers more protection from a legal point of view as there is a legal framework in place for securities in most countries
  • Security tokens can pay dividends or interest for its investors

Our News section contains further information regarding security tokens here

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