Security Token: A digital representation of a tradable asset or a utility on a blockchain that derives its value from that asset.

The first Security Token Offering (STO) Market report issued in January 2020 is blowing the crypto web.

Security tokens are discussed across the Internet a lot yet not defined properly. They are also sometimes called equity tokens and are often compared to the way in which buying shares on the traditional stock market confers partial ownership of a company.

Swiss regulator Finma breaks tokens into 2 categories: utility tokens and security tokens. Autility token is a coin backed up by a project, and this is the type of investment most of us are used to making. Usually, utility tokens are Ethereum based, as this is one of the simplest ways of making a new token and programming it so the user is granted access to some utility. A security token, on the other hand, need not have a utility. 

Security token offerings (STOs) are beginning to provide some stiff competition to Initial Public Offerings (IPOs). Here, investors are given tokens in exchange for their contribution to a fundraising drive. Tokens in such cases are backed by real-world assets such as stocks, bonds or real estate.

Since the assets which are represented by the security tokens already exist in the “real world”, they act as a bridge between legacy finance and the blockchain world. So what are the exact changes that security tokens are bringing along with them?

Many believe that STOs will contribute to the world of fintech by bringing credibility that ICOs lost back, lowering transaction fees, speeding up the execution, bringing the exposure to free-market, attracting the investors, and lowering institutional manipulations.

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