What Is a Security Token?
A security token is a digital asset that represents an investment contract between the issuer and the investor. It can be used to represent ownership of equity, debt, or other financial instruments in a company. Security tokens are typically issued on blockchain networks such as Ethereum and offer investors access to fractionalized investments in companies they may not have been able to invest in before. They also provide liquidity for investors who want to trade their holdings without having to wait for long periods of time for traditional markets like stock exchanges.
Security tokens differ from utility tokens because they are subject to federal securities laws which require issuers of these types of assets to register with the SEC (Securities Exchange Commission). This registration process ensures that all parties involved understand what rights come along with owning a security token and provides protection against fraud or manipulation by ensuring compliance with regulations set forth by the SEC. Additionally, many security tokens offer additional benefits such as voting rights or dividend payments which further incentivize potential investors looking for more than just capital gains when investing in new projects.