What is a Security Token?
A security token is simply a cryptocurrency token that represents the ownership of an asset. Think of this like a stock or equity ownership in a public company. Investors in stocks expect profits in the form of stock price appreciation and/or dividends. However, equity ownership does not include utility. This is essentially how a security token functions as well. Security tokens provide ownership of an asset and returns but NOT utility (e.g. using cryptocurrencies to buy gifts, share power, etc.)
(
Security tokens are regulated offerings involving the ownership of an asset, usually for accreditors investors with extensive KYC visibility, and are issued via a Security Token Offering (STO). This is in contrast to their utility token counterpart which is conducted through unregulated crowdsales with no ownership in a company or any asset.
There are 4 main use cases for security tokens:
Real Estate - A unit of real estate can be tokenized and distributed as an investments, similar to REITs (Real Estate Investment Trust)
Financial Instruments & Investments - Companies can tokenize and issue stocks and bonds in return for ownership and/or a return on assets
Venture Capital - LP shares can be tokenized and distributed to investors
Commodities - Tokenizing assets like gold and silver for investors that are backed by physical assets
Think of how big the global stock market is. According to Bloomberg, the global market is roughly around $80 trillion. Now imagine having even 25% of that stock issued by companies and institutions as a security token. That would put the security token industry at $20 trillion on a global scale.