- Security tokens are digital tokens that showcase ownership of an underlying asset, to give in-built compliance
- Security tokens ensure quality assets, granting investors a number of rights
- Smart securities also open up the market and cut out the middlemen, making processes faster and more efficient
The blockchain industry continues to evolve at breakneck speed, shifting the focus from initial coin offerings and utility tokens to security token offerings (STO) and security tokens (ST). Unlike traditional securities, smart securities such as STO or ST make it possible to incorporate ownership and regulation directly into a token. This provides a wealth of benefits for your business, which is what we’re here to shed some light on.
What is a Security Token?
Security tokens are digital tokens that showcase the ownership of an underlying asset or security, all of which should comply with the nation’s federal securities regulations. Unlike traditional securities, using digital tokens with in-built compliance features opens up a wider market to your investors, increases your liquidity, and streamlines the time and process to trade them.
Security tokens are expected to tower over the cryptocurrency market by 2025, which is why reputable entrepreneurs such as Polymath and Harbor are designing a strategy that will push securities to the limelight and establish the necessity of digital tokens. To that end, here are some reasons why it’s making a positive change:
Benefit #1: Investor Protection
Smart securities represent tokenized securities, which means that anyone who issues smart securities has to comply with all applicable securities regulations.
Benefit #2: Ensures Quality Assets
Security tokens can grant rights in the following:
- Virtual or physical assets ownership
- Financial commitments
- Dividend payments
- Direct or indirect participation in the management of the company
Benefit #3: Reduced Risk in the Process
You will have to go through several entities to complete a transaction in the traditional market, including the security issuer, brokers, transfer agents, registrants, clearing firms, and custodians. Smart securities improve the process by relying on two core entities: the issuer and the platform, which fast-tracks the process as well as reducing the risk of data tampering or manipulation.
Benefit #4: 24/7 Markets
Smart securities can keep up with round-the-clock trading of assets, which means that investors can leverage the potential for 24/7 markets. This opens up a global range of opportunities as you can expand your connection to investors across different time zones.
Benefit #5: Flexible Investment Methods
When using traditional security markets, investors were limited to purchasing financial instruments involving fiat currency. Now, investors can reap the benefits of flexible investment methods as smart securities enable you to make a purchase using fiat in addition to your cryptocurrency.
Traditional and smart securities both aim to raise new capital. However, the critical difference lies in the latter’s use of technological solutions. These smart securities or digital tokens allow companies to streamline their process, from dividend payments, vesting periods and distributions to shareholder voting and more.
Leveraging computer programs to connect shareholders and other organizations removes the need for middlemen, which reduces human errors, fortifies security, and decreases the cost of governance and issuance.
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