securitytokens

Security tokens are digital representations of ownership or entitlement to traditional assets, such as equity, debt, real estate, or commodities, issued and traded on a blockchain. They combine the rights of securities with the programmability and settlement features of distributed ledger technology. Unlike utility tokens, security tokens are typically subject to securities laws and investor protections.

Tokenization and mechanics involve creating digital tokens that represent proportional ownership or entitlement to an asset. Transferability is governed by smart contracts that enforce regulatory restrictions, such as investor status, jurisdiction, or minimum holding periods. Issuances may be registered with regulators or conducted under exemptions, and secondary trading can occur on regulated venues or tokenized exchanges that support compliance rails for transfers and reporting.

Regulatory landscape and compliance vary by jurisdiction but generally treat security tokens as securities. In the United States, offerings fall under the Securities Act, with registration or exemptions such as Reg D or Reg S. Post-issuance, tokens may be subject to ongoing disclosure and transfer restrictions. European and other regimes integrate tokenized securities into existing securities laws, sometimes using dedicated trading platforms or alternative trading systems. Standards and custody frameworks are evolving to support compliant issuance, trading, and asset protection.

Benefits and challenges: Security tokens can enable fractional ownership, broaden access to historically illiquid assets, automate or streamline distributions, and improve settlement speed and transparency. They also introduce regulatory and custody complexities, technology and cybersecurity risks, and jurisdictional variance that can hinder liquidity and standardization.

Use cases and examples include tokenized real estate, private equity, corporate debt, and art. Providers range from issuers and tokenization platforms to regulated exchanges and custody solutions, all aiming to enhance compliance, governance, and liquidity in traditional asset markets.