Defining security tokens is not at all something that is difficult to do. However, what is associated with them is usually not properly understood.
Traditionally speaking, securities are any ownership position that is present in a corporation that is publicly-traded, a relationship with a government corporation or body, or even ownership rights represented by options. The security token is a digital, tokenized form of traditional securities.
Defining the token is not that easy to do. When looking at a generalized point of view, it is a representation in a particular ecosystem and it signifies ownership. The token can represent voting rights, stakes, value or practically anything digital. It is not limited to one role and can fulfill numerous roles in the ecosystem native to the token.
Fraud prevention for STO is vital in business because security tokens are often associated with cryptocurrencies and ICOs.
In the cryptocurrency industry, the token is a utility or an asset that a company gives to investors during the ICO (initial coin offering) public sale stage. The ICO is practically a crowd sale, marking crowdfunding in cryptocurrency.
ICOs were revolutionary when they appeared because they accomplished some specific tasks:
- They offered a really easy way for a company to get the funds that they need for a project.
- Any person was able to become an investor by buying tokens.
The problem is that the revolutionary technology that was developed also attracted scammers. This brought in the need to employ KYC and different anti-money laundering strategies for protection purposes. The ICOs that are not transparent and that do not verify investors now have big problems and cannot be legit.
Security Token Value
Tokens can have different functions. This is what makes them gain value. 3 token value tenets exist. They are:
Every single token role has a purpose and set of features.
The main roles tokens take up are:
A holder gets possession of a token and then receives specific rights in the appropriate ecosystem.
- Value Exchange
Tokens create internal economic systems within a project. In this case, tokens help sellers and buyers to trade value. You gain rewards when specific tasks are completed.
Tokens can be toll gateways so that you use them for specific functionalities.
A token enables holders to enrich user experience in an environment. For instance, in the Brave browser, BAT holders can enrich customer experience. This can be done by donating tokens to content creators.
The token is used as a value storage. With them you can conduct transactions outside and inside ecosystems.
Tokens can help distribute profits or financial benefits among investors.
Token valuation is something that is usually very difficult to calculate. Tokens have to fulfill some of the properties mentioned above in order to become valuable. Usually, the more properties the tokens have, the higher the valuation!
As you can see, security tokens can be quite complicated. What was mentioned above was just a small portion of everything that can be said. Even so, what is for sure is that tokens can easily become a fundamental part of the future of financial institutions.