One of the challenges facing the cryptocurrency world is security. The security here is not just a technical aspect of the security of crypto transactions. But it’s also a basic security aspect.
Since it is designed to be issued by a development company without the control of any country’s financial authority, cryptocurrencies are misused by some people to finance their illegal activities. This also helps the price of cryptocurrencies change rapidly in a short time
Fortunately, nowadays innovators in this field have developed specific crypto assets that are relatively safe in terms of fundamentals by creating crypto assets with underlying assets. In the context of coins, this crypto asset is in the form of stable coinWhereas in the context of a token, this crypto asset is in the form of a security token.
Security Token Definition
Security tokens are crypto assets that are priced according to the price movement of a particular asset (underlying assetSome of these assets can be in the form of securities in the capital and financial markets such as stocks or bonds. or in the form of other assets such as assets, commodities, etc.
In contrast to conventional tokens issued by ICO mechanism, security token published in the mechanism Security Token Offerings (STOs). Because these types of tokens have different characteristics compared to tokens in general. This nature is what makes STOs widely accepted from countries that prohibit ICOs other than the United States. Other countries that allow STOs include Singapore, Japan, Hong Kong, Switzerland, Canada and the United Kingdom.
In addition to being used to raise funds for the development of blockchain technology. This issuance is also useful for companies or governments that need to add new capital to their finances to finance their operations.
Security token type
according to the underlying asset These instruments can be divided into:
- Equity Token. Tokens that make stocks a reference tool Just like investors in stocks Owners of these tokens are also entitled to dividends or voting rights. or even both
- debt tokens. Tokens that make bonds a reference tool Like most bond investors Owners of these tokens are also eligible to receive coupons. Pay in full on the due date. and claim the company’s assets if the company goes bankrupt
- asset reserve tokenIt is a token that makes real-world assets other than bonds and stocks a reference tool. These assets could be real estate projects. Mining Goods or other commodity market assets
Difference Between Security Token and Utility Token
Although they are both crypto assets, security tokens are different from utility tokens. Here are some differences:
- Presence of the underlying assetAs mentioned above, these crypto assets have their underlying capital, financial, or commodity markets assets. Therefore, price movements are based on asset price movements and are more or less stable than conventional tokens. On the other hand, utility tokens are issued without the underlying asset. of this type of token is therefore due to changes in supply and demand. and can change quickly in a short time
- regulatory factorOne thing that makes STOs easier to accept by government agencies than ICOs is because of the compatibility between security tokens and common securities. Therefore, the government is obliged to change or amend the relevant securities regulations in order to be able to trade in the form of In addition, the regulation of this tool is somewhat stronger than utility tokens. The reason is that the securities used as the basis for the prices of these assets are investment instruments that are closely protected by the government. of any country and there may be differences in investment rules between one country and another. As a result, security token operations must also comply with securities transaction regulations in that country.
- safety factorTighter regulations and the existence of underlying assets make this type of token safer in theory than utility tokens. However, the above two things also allow analysis of the token’s price dynamics. Security is more comprehensive too. Because investors have to take into account factors related to the policy and economic conditions of the countries involved.
- profit potential. In the description above It is clear that securities token investors are only entitled to things generally received by investors in the capital market, such as dividends or coupons. This is certainly different from utility tokens, where profits are typically focused on raising capital. In addition to the benefits of using tokens for various functions
Advantages of security tokens
If at the previous point You already know the advantages of investing in security tokens. Compared to utility tokens Here are some advantages of investing in this digital asset. Compared to buying or issuing other financial instruments directly:
- transparencyOne of the key points presented by crypto assets is transparency. In this case, users can track transactions through smart contract displayed after the transaction Regardless of the anonymity of users and transaction partners.
- faster payment processThe process of liquidating or clearing real-world asset transactions is often time consuming. In stock transactions, for example, investors have to wait 2 to 7 business days for clearing process. This process will definitely take longer if what is being sold is a commodity asset such as gold, blockchain technology and cryptocurrencies. automatic payment process Therefore, transactions by investors are completed faster.
- Trading 24 hours a day. Any country’s stock exchange is open for only 8 hours on business days. including the Indonesian Stock Exchange, which is open to investors only from 9:00 AM to 4:00 PM Monday to Friday. Saturday – Sunday and public holidays These business hours do not apply to trading crypto assets including security tokens.
- saveThe STO process, or initial security token offering, is more cost-effective than an initial public offering or an initial public offering. The reason is that issuing this token does not require companies to Hire a team of experts, such as a securities company, an auditor or a legal team for issuing securities.
Security token example
With a market capitalization of over 15.48 trillion USD, here are some examples of the most popular instruments:
Although there are many benefits for investors, traders and companies. and has been certified by many countries around the world Issuing security tokens in Indonesia is not yet legal and requires further study.
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