Security Token Definition
A Security Token is a form of digital asset governed by federal security regulations. It represents a stake or ownership in a real-world asset, offering investors equity, profit sharing, dividends, or voting rights, similar to traditional securities but in a digital form. These tokens are often used in Security Token Offerings (STOs), which are an alternative to Initial Coin Offerings (ICOs).
Security Token Key Points
- A Security Token signifies ownership in a real-world asset, such as equity in a company or interest in a fund.
- It is subject to federal securities laws and must be registered with the relevant authorities.
- Investors may earn profits through dividends or price appreciation.
- Security Tokens are used in Security Token Offerings, a fundraising method within the blockchain-based marketplace.
- They grant more rights to investors than utility tokens, including voting rights.
Who uses a Security Token?
Security Tokens are principally used by investors looking for digital exposure to real-world assets. These investors could be individual retail traders, corporate entities, or institutional investors. In addition to this, businesses looking to raise funds often leverage Security Token Offerings as a way to seek investment.
What is the purpose of a Security Token?
The main purpose of a Security Token is to digitize the ownership of real-world assets. This not only increases the liquidity of these assets but also simplifies the process of buying, selling, and managing securities. Companies can also use security tokens to raise funds from a global investor base.
When are Security Tokens used?
Security Tokens are typically used during Security Token Offerings, when a company is looking to raise funds. They may also be used in private investment rounds or on secondary markets post-STO, where investors buy and sell them like any other asset.
Where can Security Tokens be traded?
Security Tokens can be traded on any platform that complies with securities law. Such platforms are usually referred to as Security Token Exchanges or Digital Securities Marketplaces.
Why use a Security Token?
Security Tokens bring the benefits of blockchain technology—like increased transparency, quicker trades, and decreased costs—to traditional securities. They also give investors the ability to own fractions of assets, widening the pool of potential investors.
How does a Security Token work?
Security Tokens work by using blockchain technology to assign each token to an owner. When a transaction occurs, both ownership of the token and the corresponding rights are transferred to the new owner. This not only simplifies the process but also makes it much more secure.
