In this article we are going to talk about the Security token, where the following topics will be discussed: What are security tokens, what are the characteristics and finally some examples.
Table of Contents
What are security tokens?
Security tokens can be seen as an investment product. Security tokens are bought with the expectation of receiving dividends or making a profit on the stock exchange. Security tokens can be brought to market just like utility tokens, only not through an Initial Coin Offering (ICO) but through a Security Token Offering (STO). An STO is similar to an ICO but safer since security tokens have underlying value. The underlying value of security tokens gives investors more security than when they invest in utility tokens.
However, many crypto projects do not want their tokens labeled as security tokens. When a token is seen as a security token, the issuer of the token is bound by certain laws and regulations that he would not be bound by in the case of a utility token.
This is because security tokens fall into the same category as shares, bonds, and ETFs. This can be accompanied by limitations in the area of tradability. Less marketability often makes it more challenging to be launched on an exchange with high volume. As a result, security tokens are not always as popular an investment option as utility tokens.
Characteristics of Security tokens
As the creator of a security token, you must comply with certain laws and regulations. These laws and regulations do not apply to utility tokens, because by their nature, they are not designed as investments. In addition to having to comply with various laws and regulations, security tokens have some other characteristics, namely the following:
- These tokens entitle the holder to a profit distribution in the event that a company makes a profit.
- They entitle you to control within the company.
- They are supervised by national regulators such as the AFM or SEC.
NEXO is a good example of a Security token. NEXO is a loan platform that has lent more than $12 Billion USD to over 1,000,000 users. NEXO allows people to borrow money instantly in 40+ fiat currencies. Users deposit cryptocurrencies as collateral on the platform. NEXO also enables users to earn interest on USD, EUR, GBP and various stablecoins. NEXO distributes 30% of their net profit to their token holders.