Subscribe to our News & Services
FM ALL News
Follow us on Twitter
Follow us on Linkedin
Security tokens are cryptocurrency tokens that represent a contract into an underlying security, which could include stocks, funds, bonds, and real estate investment trusts (REITs.)
Security tokens can also be used as a method of fundraising. A security token offering (STO) is similar in nature to an initial public offering (IPO), however involves tokenized digital securities, known as security tokens.
These are then sold in cryptocurrency exchanges.
Tokens can be used to trade real financial assets such as equities and fixed income, and use a blockchain virtual ledger system to store and validate token transactions.
In a regulatory sense, tokens are classified as securities and are more susceptible to oversight.
This makes them more secure relative to other alternatives such as initial coin offerings (ICOs), which have resulted in countless cases of fraud.
Many STO can also be held on regulated stock exchanges that can be characterized as tokenized IPO.
These offerings have benefits, including the potential to deliver significant efficiencies and cost savings.
Where Are STOs Legal?
STOs are regulated and legalized in several countries where ICOs have not. This makes them the preferred method of fundraising and are fully regulated in following jurisdictions:
European Union, Germany, United Kingdom, Switzerland, United States, Canada, Brazil, Australia, Israel, Singapore, Japan, and Hong Kong.
In particular, STOs are placed under securities legislation.
Even in the aforementioned jurisdictions however, security tokens still require a connection to a registered company with real assets being sold.
There is some degree of controversy surrounding security tokens, mainly as a means of their classification.
There exists a debate surrounding security tokens as to their legal differentiation of whether they can be characterized as a utility instead of a security.
Traditionally, a passive financial return is expected from the investment, thus it is classified as a security.