What is a security token?

A security token is a type of digital asset that represents an ownership interest or investment in a traditional financial asset or enterprise. Security tokens are built on blockchain technology and are subject to securities regulations, unlike utility tokens or cryptocurrencies that are primarily used for accessing services or as a medium of exchange.

Security tokens can represent various types of assets, including:

1. Equity in a company: Security tokens can represent shares in a corporation, similar to traditional stock ownership. This allows companies to issue and manage shares digitally, reducing administrative costs and enabling fractional ownership.
2. Debt or bonds: Security tokens can represent debt instruments, such as corporate or government bonds. This enables the issuance, trading, and management of debt securities on a blockchain, improving efficiency and reducing intermediary costs.
3. Real estate: Security tokens can represent ownership in real estate properties or investment funds, enabling fractional ownership, easier trading, and more efficient management of real estate assets.
4. Commodities: Security tokens can represent ownership in commodities, such as gold, silver, or oil, allowing for digital trading and management of these assets.

Security tokens are subject to securities laws and regulations, which means that issuers must comply with Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements, as well as other regulations related to securities offerings. This ensures that security tokens are issued and traded in a transparent and compliant manner, providing investor protection and reducing the risk of fraud.

Security token platforms, such as Polymath, Harbor, or Securitize, provide the necessary infrastructure for issuing, managing, and trading security tokens. These platforms offer tools for compliance, investor onboarding, and token lifecycle management, making it easier for businesses and investors to participate in the security token market.