What are Security Tokens?

What are Security Tokens?

Security tokens are digital assets based on blockchain technology that function as securities. In contrast to utility tokens, which provide access to certain products or services, security tokens represent an investment or stake in a company, asset or project and are therefore often subject to the legal provisions and regulations for securities.

Here are some features and functions of security tokens:

  1. Regulation and compliance: Security tokens are subject to the legal provisions and regulations that apply to traditional securities. Depending on the jurisdiction, this may include various requirements, such as registration with regulatory authorities, compliance with investor protection regulations and the disclosure of relevant information about the underlying company or project.
  2. Rights and dividends: In contrast to utility tokens, security tokens grant holders certain rights and entitlements. These include, for example, voting rights in company decisions, dividend payments, equity interests or the right to repayment in the event of liquidation.
  3. Asset-backed tokens: Security tokens can also be backed by real assets such as real estate, artworks or company shares. This allows investors to hold digital shares in these assets and benefit from potential increases in value or income.
  4. Professionalism and investor protection: Security tokens are often issued by companies or start-ups that want to address a broader investor market. Compliance with regulatory standards and best practices is intended to ensure a higher level of transparency, accountability and protection for investors.

It is important to note that the issuance and trading of Security Tokens requires specific regulations depending on the jurisdiction. These may vary from country to country and investors should comply with the applicable laws and regulations in their region.

As security tokens are often associated with regulatory requirements, they can be more complex to create, manage and trade than utility tokens. It is advisable to obtain comprehensive information about the underlying conditions, the company, the legal structure and the associated risks before investing in security tokens. It is also recommended to seek legal advice to ensure that all legal requirements are met.