The rise of blockchain technology has the potential to completely transform the way the financial markets operate. One of the key parts of this protocol that enables such changes are security tokens. If you haven’t heard about them yet, now is a good time to get you up to speed.
What is a security token?
The term token is used to represent any tradable asset found within the blockchain. A security token is a form of a contract between the issuer and the holder which represents a specific investment in a company. When buying the ownership rights to the assets, investors expect future gains in the form of share revenue or dividends.
Security token regulations
Security tokens are a digital representation of real securities and, as tradable financial assets, must adhere to the rules regulating interactions between the parties within the system. Such regulations depend on the country, e.g Luxembourg aims to protect the investor’s interest and market integrity, while the UK hasn’t implemented crypto regulations so far.
Opening up the investment options
Traditional investments used to be reserved for big investment funds. But with the introduction of security tokens, new possibilities are opening up for regular people and investing a smaller amount of money is now possible, which can lead to the creation of more diverse portfolios. The reliability of security tokens as a secure trading option saw an emergence of platforms like VNX Exchange which markets the tokenized venture capital assets bringing liquidity to VC investments.