Security tokens are taking the crypto space by storm. They have even managed to attract the attention of institutional investors and governments like never. In this article, we will learn what security tokens are and their potential benefits.
What are security tokens?
A security token is a digital asset that represents or derives its value from an underlying real-world asset, like real estate, commodities, equity, bonds, and many more.
The creation and trading of security tokens are facilitated by blockchain technology and smart contracts- software algorithms that program a token’s functions and features. The creation of security tokens is enabled by a process called “tokenization” whereby an asset is divided into digital units that are issued on a blockchain, like Ethereum.
Token transaction records are tracked and stored in blocks connected chronologically on a chain validated by autonomous third parties known as miners. This chain of independently confirmed transactions forms the blockchain. The term ‘STO’ or ‘Security Token Offering’ describes the issuance of security tokens to investors on a blockchain.
The benefits of security tokens
Opening investment opportunities to everyone
Security tokens significantly increase the successful use of online crowdfunding to raise capital. Token issuers can reach a global pool of investors, rather than being confined to the traditional offline sources of fundraising from sophisticated investors, like angels and venture capitalists. Besides, investing in security tokens gives the token holders a share in the ownership of the underlying assets, which in most instances is so expensive to purchase entirely- for instance property.
Tokenizing, especially illiquid assets, unlocks the liquidity in them, considering the ability to trade tokens at any time in a blockchain marketplace, like Tokenizer. Securitize, and Swarm. In the real estate industry, the owner of a property development project would typically have his investment locked-up until the building is completed and sold, therefore generating a return on investment. The tokenization of a development project enables interests in the project to be easily bought and sold at any time, giving investors the much-needed liquidity they previously lacked.
Cost, speed, and transparency
Payments, like rental income from a property, are distributed to token holders on a blockchain network. This eliminates the need for third parties, like banks, that charge processing fees. Additionally, the visibility common in the peer-to-peer (P2P) system of verification implies that the history of all transactions can be accessed by the investors. Most parts of the exchange process are automated by smart contracts, meaning payments are done almost instantly.
Tokenizer Blockchain Banking Platform
Tokenizer is a blockchain investment banking system that champions accessible, transparent, and safe financial services. We believe that everyone deserves: equal access to investment and fundraising opportunities. That is why we are democratizing access to capital for investors and fundraisers by making investing and fundraising efficient, safe, and accessible to everyone.
Are you in need of raising funds or investing in security tokens? Apply to raise funds in Tokenizer by visiting opening an account here. If you want to invest in security tokens, contact us by creating an account here, and if you want to liquidate and trade-in Asset-Backed Tokens, we have a decentralized exchange designed for you. You can also contact us to order a metallic crypto card at $149 only.