A security token is a form of cryptocurrency which represents an investor’s rights, stake or equity in an asset. Security tokens were initially issued by companies and the government as bonds for the purpose of voting and stocks. Now the security tokens are underpinned by the blockchain technology and it has gained innumerable benefits.
The blockchain is completely transparent for anyone to access. Anyone can track transactions , possessions , issuance and other details about any fungible or non fungible tokens.
The procedure of possessing or transferring a security token is quick and automated. This market working on blockchain technology is not bound to any fixed time period or schedule benefiting in terms of availability.
There are basically two major types of security tokens available in market:
- Equity / Debt Tokens.
- Asset backed Tokens.
Equity tokens are just like the traditional bond and stocks. But the key difference is that the information is stored on the blockchain, the equity security token is registered on the blockchain and the transaction is saved in the network of hundreds and thousands of systems around the world. The Debt token functions the same way but it describes the short term loan by a party (i.e. investors) at some decided interest rate.
Asset backed tokens describe the ownership of an asset such as: Artwork and Real Estate etc. Asset backed tokens provide owners the fractional ownership of the asset. This token represents the stake of the investor in an asset which has some return over time and the value of the token may also increase with time.
The key topic here is “How security tokens bring fair distribution of value”
In tokenization of real estate assets, the security tokens underpinned by blockchain is a young market but it is highly essential and will undoubtedly take over the whole market.
Security tokens in real estate facilitates in every single aspect from being cost effective to complete transparency.
It cuts out the intermediaries such as brokers and dealerships etc. This makes the whole procedure cost effective as it saves a bunch of fees such as commissions and brokerage etc.
Security tokens are made up of many smart contracts over blockchain which makes it a much safer and secure choice. It has also lower the barrier for entry in big markets(e.g. Real Estate). It has made it easy for small investors to invest in big markets by offering fractional ownership of assets.
Investors were previously limited to investing in a company or business as a whole or in terms of shares. Security tokens allow the investors to invest in a variety of markets where there was no sign of fractional ownership before(e.g. Real estate & Collectibles). Another advantage of security tokens is that the history of ownership is saved permanently on a secure ledger which is transparent to anybody. It actually provides the investors with the complete past trend , previous ownership and other records of the assets.