Security token
A security token is a security in token form: it certifies a right such as a company share, a bond or a fund unit.
Explained simply
A security token is legally a security, except that the register sits on a blockchain rather than with a central securities depository. The holder has the same rights as with a classic share or bond: dividend, interest, repayment, voting rights.
Because it is a security, the usual rules apply: prospectus requirement, supervision, investor protection. That distinguishes it from a utility token, which only represents a right of use.
From the familiar world
Shares first existed as paper certificates, then as book entries at a central depository. The security token is the third form: an entry on the blockchain. The right behind it stays the same.
An example
German issuers have placed bonds as crypto securities under the eWpG. The bond exists solely as a token, and the register is kept by a crypto securities registrar registered with BaFin.
Why it matters
Security tokens are the bridge between the securities world and blockchain. For advisers the key point is: these are regulated securities with a new register, not speculative coins.
To pass on
„A security token is a perfectly ordinary share or bond, except that the register sits on the blockchain.“
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