Security Tokens Vs Tokenized Securities: What are the Differences?

by | Sep 9, 2020 | Token | 0 comments

As the cryptocurrency space continues to reveal its true potential, it is important to understand all its specs. There is more and more buzz around Security Token Offerings (STOs), security tokens, tokenized securities, and the potential of tokenized assets. But why? And what are they?

What is a security token?

A security token is a compliant digital asset represented by a cryptographic token that trades through a blockchain marketplace. Unlike cryptocurrencies (Bitcoin, Ethereum, etc.), tokens are not limited to a single role in their application. They can act as anything between a value, a stake, or a voting right.

The difference between a “crypto” security token and a cryptocurrency (like Bitcoin and Ethereum) is that cryptocurrencies represent stores of value used to pay for goods and services, or items outside of their native platforms and are governed by the Money Service Bureau (MSB) rules and regulations.

On the other hand, tokens are value-transfer tools that represent various asset classes, or sets of rights. That implies they can have just as much tangible value as stocks in a company or a real estate property.

Tokenized securities vs securitized tokens

In the securities context, security tokens can further be classified into two main classes: tokenized securities and securitized tokens. Tokenized securities resemble traditional securities, like equity and debt. The main difference is that they trade through a cryptographic token on a blockchain network.

Tokenized securities do not bring as much short-term innovation to the financial system, but as blockchain use cases in financial services and markets continue to increase, new issuances of traditional securities will embrace blockchain technology to enjoy the benefits brought by blockchain.

On the other hand, securitized tokens, are a brand new asset class. They contain both benefits of blockchain technology and the innovative new features of the new token asset class. Importantly, securitized tokens are compliant financial assets (securities) that must be issued, processed, and traded in compliance with the security laws.

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