Apoorv Gupta

A Primer to Security Tokens

As the world of digital currency continues to evolve the introduction of security tokens has brought in a new wave of interest and excitement of institutional money in the cryptocurrency market. Going by expert views, the newfound interest in security tokens is here to stay! Let’s find out a little more about them and how they can help individuals and companies ride the wave of success and financial prudence in near future.
What are security tokens?
Security tokens are actual financial securities, like shares or equity in traditional assets, startups, venture funds or even real estate. They can be best described as tradable assets that are available to only authorized or verified participants. They represent the investor’s ownership in an underlying security of a company or his/her share in a cash flow generated by the company.
Why are security tokens gaining significance?
The reason they have become a significant part of the blockchain is because of the extensive programmability they offer. For example, the stocks that you buy are nothing but electronic representations of your ownership of the assets. They might be put inside a bank locker and provide no use in terms of functionality. But with a security token that is not the case. You can actually use them to perform a variety of functions like program dividend payments and schedules and proxy voting directly into the token. They are also beneficial in the sense that they provide you access to 24/7 markets, have a lower transaction fee and allow you to trade in markets across the globe.
Should you invest in security tokens?
Security tokens offer holders ownership exposure of the underlying asset; legal and economic rights are often extended to the holder through programmable equity as voting rights and dividend rights, respectively. Consequently, regulatory bodies, such as the SEC, employ stringent criteria necessitating holders to submit a KYC submission, granting them any such aforementioned rights. Real estate ownership, stocks, venture capital shares can all be tokenized. Security tokens are bridging the gap between traditional financial assets with the blockchain.
How are security tokens being regulated & complied?
Security tokens are being standardized which shall embed the regulatory requirements into the token and make them available only for verified participants. Meaning only authorized investors who’d meet all the criteria as set according to the protocol will be able to transact in a specific security token.
Are security tokens an opportunity worth investing in?
One of the biggest advantages of security tokens is that they provide democratized access to investment for entrepreneurs and investors alike. Its introduction in the system will enable each member in a large group of investors in a venture capital to take on a small piece of the pie with actual, profitable assets. It will enable transparency in the system and open up a whole new world of investment opportunities for more people and companies.

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