Security tokens are digital tokens that derive their value from underlying assets, making them distinct from utility tokens, which are often used for accessing a platform or service. Security tokens represent ownership or equity in an asset, granting investors various rights, such as dividends, voting rights, or a share in profits.
The Significance of Security Tokens
Liquidity Enhancement: One of the primary benefits of security tokens is their potential to increase liquidity in traditionally illiquid assets. Real estate, for example, can be challenging to sell quickly, but security tokens can facilitate fractional ownership, making it easier for investors to buy and sell shares.
Global Accessibility: Security tokens are accessible to a global audience, breaking down geographical barriers for investors. This expanded reach opens up opportunities for businesses to attract a diverse set of investors.
Efficient Capital Formation: Security token offerings (STOs) provide a streamlined way for businesses to raise capital while adhering to regulatory requirements. The digitization of the fundraising process reduces costs and administrative overhead.
Transparency and Security: Blockchain technology ensures transparency and immutability of transactions, reducing the risk of fraud. Smart contracts can automate compliance and regulatory requirements, enhancing security and trust.