Every crypto-token has some particular use and can’t be valuable without utility. Though, it is totally different with security tokens, that don’t need any utility to have value and be resalable - let’s see how is that even possible.
What is a security token?
A security token doesn’t represent some information, stored on-chain and sometimes it isn’t even a token, but a liquid contract, that however still doesn’t provide any usability to some crypto-project. Such tokens are basically bridges between real-life organisations’ stocks and crypto. When a company wants to divide their stocks between regular exchanges and the world of decentralised web 3.0 security tokens is what holds it all together.
The problem with storing ownership in crypto is the lack of regulation, most countries usually have as an obligation for companies and organisations. Therefore all security tokens are also regarded as securities by financial regulatory authorities. This fact annoys many crypto investors, though it also leads to a high income of new investors, who were only willing to trade on regular exchanges previously.
The distribution
When a security token is established by the company, they also start creating a whitelist of investors’ wallets that are suitable for holding the tokens. A company might also go for an STO (Security token offering) before the IPO (Initial public offering), so they allow a bigger amount of people to hold their stock shares and bring interest to crypto. The registration for buying a security token consists of at least a KYC (Know you customer) and an AML (Anti-money laundering) test compliance. The tokens’ smart-contracts can also hold some regulations of the buyer and holder criteria inside not to allow any unexpected jurisdiction issues or single-holder monopolies. Excluding that, security tokens can be traded any way you want if you were lucky enough to win the distribution competition. By now there are even exchanges like Open Finance, Blocktrade, and tZero, made specifically for security token trading purposes.
Security tokens aren’t just about owning company stocks, they could also issue real estate on-chain stock shares. That would mean you own a piece of land as a smart-contract - pretty cool, huh?
Not only that, but because of regional security regulations STs aren’t influenced by the traditional blockchain issues like fees or slow operation speed, because of those being restricted for stock shares. Still, STs allow easy fractionalisation.
Where to start?
Every security token takes its beginning on the STO platforms, for example The Elephant, Funderbeam, and Causam Exchange, that are already uniting the traditional stock market with blockchain. Consider taking a look at those first and reading the regulations of claiming a couple different tokens.
Overall, security tokens are definitely needed in the modern crypto world because the more people are using the chain - the bigger it has to scale, causing progress and helping us all earn money.
