The idea of security tokens hasn’t been around for that long and was practically presented mid-2017. The idea immediately made progress, and presently business people and financial specialists alike are energetically bouncing on the empty yet encouraging tokenized security space. As of now, there are over twelve genuine players in the security token market.
Most importantly, securities themselves are nothing new, as they’ve been around since the thirteenth century.
As indicated by Investopedia, securities are budgetary instruments that hold some sort of financial value and speak to proprietorship (stock), a creditor relationship (bond), or the portrayal of rights to ownership (alternative). They can give an assortment of monetary rights to the proprietor of the securities, for example, equity, dividends or interest. Additionally, investors in securities expect the estimation of the security itself to increase in value after some time. Securities by and large get their incentive from another asset.
In every one of these respects, security tokens are essentially the equivalent to traditional securities. The primary distinction between the two is that the last kind is tokenized, automatically organized, and managed through smart contracts and dependent on a blockchain framework.
In an effort to help potential investors understand more about what security tokens are and how they’re unique in the cryptocurrency and blockchain world we present five basic things investors need to know about security tokens:
1. Security tokens are not cryptocurrencies or part of unregulated ICOs
When you put resources into a security token, you are really putting resources into the underlying asset. The fact that there is a security token is to some degree superfluous — it’s just your advanced evidence of proprietorship in that security. Since security tokens are computerized they are more effective than conventional methods. They’re additionally tradable on worldwide marketplaces, giving security tokens a level of liquidity that would be outlandish with conventional securities.
2. Compliance is coded into the token
An accurately coded Security Token makes it for all intents and purposes unthinkable for anybody to purchase, sell, or exchange the security in a ’’resistant’’ manner. Regulators have so far have been complimentary of blockchain innovation and its potential.
US Securities Exchange Commission Chairman, Jay Clayton, expressed: “Blockchain technology has incredible promise for securities and other industries.”
Many in the security token industry feel that it’s not very far of a jump to envision administrative bodies requiring every single future security to be sold utilizing compliant security tokens.
3. They Promise More Liquidity
The guarantee of worldwide liquidity is maybe the security token’s most important characteristic. Security Tokens can speak to partial ownership of an asset and to be exchanged on worldwide security token marketplaces and trades – two things that are essentially unimaginable for traditional securities.
4. They are an efficient feature rich improvement over traditional securities
In the traditional securities industry, deal execution is frequently stalled by the number of third parties involved and exchanging is, for all intents and purposes, impossible. Security tokens can likewise be coded to naturally deal with a cap table and execute any occasions related withholding the security, for example, dispersions, stock splits, voting, buy-backs, and so forth. The investor experience is enhanced in light of the fact that every one of these exchanges is instantaneous.
5. They are trustless
All exchanges related with a security token (issuance, purchasing, selling, exchanging, and so on.) are recorded on the blockchain, or, in other words, “trustless” framework because of the way that blockchains are open and permanent in their record keeping. There is no requirement for any party to trust the other while executing by means of a security token. Everybody just trusts the math.