Security Tokens are the neoteric virtual assets which are ruling the world. These tokens are considered to be completely secure since they pass Howey the test and are built in compliance with the country’s regulations.
Security Tokens usually derive value from a tradeable external asset. These tokens have recently gained the trust of potential investors in various projects. Therefore, it is important to know the different types of security tokens prevailing in the crypto industry.
Security Tokens & its types:
A Security Token is an alternate fundraising mechanism of ICOs, where entrepreneurs sell their tokens against the tangible assets. They act as a secure investment channel and protect the investors from scams.
Depending on the country, the regulations may vary. In the United States, Regulation A+, Regulation D, Regulation S are the jurisdictions. In the same way, most of the crypto-friendly countries will have their own set of rules.
There are three major Security Tokens in the market:
- Debt Token
- Equity Token
- Asset Token
Debt Tokens are the tokens that represent a debt or cash that is similar to short term loans against certain interest for certain principal amount lend to the company. It is comparatively equal to the raised capital through debt.
Debt Tokens represent debt instruments such as bonds, notes, certificates, real estate mortgages between a lender and a borrower. The value of this token is decided by a couple of factors:
Debt Tokens are subject to risks of default of the debtors or drastic changes in the valuation of debts.
Debt Tokens are structured to a regular dividend based on the payments of the underlying debt instrument.
The reason why these two factors are important is that they determine the price of the Security Tokens.
Here are a few benefits of Debt Tokens:
A Debt is a global level approach that is widely accepted that helps to operate and analyze the corresponding representations of debt.
- OTC Trading
Most of the debt token trading takes place in OTC Exchanges across the globe. In general, security tokens are intended to streamline the process.
Here, Debt is composed easily with the representation by making the real estate leases as a security token.
Equity tokens are one of the security tokens which represent the ownership of an asset such as company stock. A good situation for raising the capital with Equity Tokens could be a company that sells physical products or services.
Issuers of these tokens are seeking to access the large pool of institutional money that has not penetrated through the crypto market.
Here are a few benefits of Equity Tokens:
Equity Tokens are the most proven token economy in the world. They are very much similar to shares and stocks.
- Keep Control
It is possible to issue non-voting shares. This means that you don’t give out the control of your company, but you allow people to invest safely.
- Feel Secure with Regulations
If you go through the Equity crowdfunding model with securities in accordance with the security rules, you can remain safe & secure with the launch.
When speaking about the future, Equity Tokens will become more popular. More companies will start considering them to raise funds for ICO instead of utility tokens. They will also be more robust with the legal aspect. Some regulators are in favor of Equity Token Crowdfunding and treat them as a mode of security.
Asset-Backed CryptoTokens are the reserved security tokens that represent ownership to certain assets such as Real estates or commodities. Commodity-backed tokens address the issues of trust, their inefficiencies, and the complexities of the transactions which involve multiple parties.
Tokens can be used as virtual currencies, which have the characteristics of a commodity such as Gold, Silver, Oil. Commodities such as Gold, Diamond gives the token the factor of stability and value. Among the entire commodities, Diamond act as the most stable asset with high value.
Asset-backed tokens have a wide range of potential for increasing access to investments and encourages people who have low income. These tokens help fractional and trustless participation in investments such as real-estate ventures, ownership, etc.
Here are a few benefits of Asset Tokens:
Once the investor buys the Asset tokens, no one can erase the factor of “ownership” from them.
Tokens can be accessed from anywhere across the globe at any time 24*7 through mobile or desktop devices.
These tokens eliminate the need for a middleman to perform the transactions. Thus, it cut down the additional cost.
Tokens eliminate the asymmetry of information present during the transfer of ownership.
Asset Tokens promises a greater set of liquidity which increases the expected value from the trade and eliminates the need for minimum investments.
Future of Security Tokens:
Security Tokens are often viewed as the factors which are intended to replace Utility Tokens or Initial Coin offerings. As the countries start accepting these tokens as legal assets from the investors, we can expect traders to slowly move towards Security Tokens. Security Tokens still haven’t made any success stories since they are in nascent stages. By leveraging the versatility of STO Script to enhance the liquidity, traceability in it. Security Tokens also has the potential of opening up asset ownership to a wide variety of people.
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