Introduction to Security tokens

One of the fastest growing digital technologies in recent history is the blockchain industry. The cryptocurrency sector is one aspect that has contributed to the popularity of the blockchain industry. Over the years, there has a been an impressive increase in the number of cryptocurrency tokens. According to Investopedia, a crypto token is a virtual currency token or a denomination of a cryptocurrency. It represents a tradable asset or utility that resides on its own blockchain and allows the holder to use it for investment or economic purposes. Amongst cryptocurrency tokens is a special type of token known as a security token.

WHAT IS A SECURITY TOKEN?
A security token is considered to be a unique token issued on a permissioned or permissionless blockchain, representing a stake in an external asset or enterprise. Entities like government and businesses can issue security tokens that serve the same purpose as stocks, bonds, and other equities. A security token basically “securitizes” a real-world asset, implying that the token is backed by an asset that has a tangible value. The value of security tokens is based on the key factor of the type of asset. Examples of assets that can be tokenized include real estate, art piece, exclusive goods, or trust. Here is an example of how a security token works — Let us assume you want to start up a bakery business, however, you need investors. You go ahead to offer a “bakery” security token for $0.5, with a goal of raising $270,000. You have investors purchasing loads of this tokens and this ownership might come with certain rights or dividends. You get to receive the money necessary to start your bakery, and your investors gain ownership stakes and the potential for profits as the business succeeds.

Advantages of Security tokens
Security tokens run on the blockchain technology and therefore offer some great uses which include;
1. Transparency as everything on the blockchain is auditable.
2. Instant settlement as clearance and settlements are automated and quick on a public ledger.
3. Availability is not an issue as the blockchain is active all around the clock.
4. Divisibility as the tokenization of assets provides more investment opportunities for everyone. Tokenization will democratize access to assets and offer superior levels of accessibility and granularity.

Reference
https://medium.com/@komobongsilas/security-tokens-and-the-issue-of-liquidity-25fa00946f0e