In the crypto space, it would be unfair to penalize someone for mispronouncing or confusing one word or phrase for the other. We have different versions of Bitcoin (albeit we know the original) while until date, newbies find it hard to tell the difference between Ether, ETH, and Ethereum.
In late 2017, the concept of security tokens and tokenized securities appeared and had since then garnered momentum in the industry.
However, it is often easy to mistake one for the other or at least not be able to tell what the difference is between security tokens and tokenized securities.
We try to solve that problem in this article by providing clear differences between these new types of assets. Just before that though, here is a quick definition that could serve as a basis for understanding what follows :
Security tokens are blockchain-based tokens that allow startups and companies and to raise funds for their product even without launching it.
Tokenized securities are a technological representation of a company’s shares or other securities such as bonds, real estate, etc that allow its holders to become shareholders in the business automatically.
Now that we’ve stated that, there are features that are common with both types of assets.
Similarities Between Security Tokens and Tokenized Securities
1. It offers startups and companies access to pool funds from global investors easily.
2. Powered by blockchain technology.
3. It allows buyers and sellers of the assets to deal directly without an intermediary.
4. Enhanced liquidity for asset holders and unlimited trading access.
5. Investor profits depend on the success of the company that issues the token.
Now, let’s go over some critical features that set security tokens apart from tokenized securities.
Differences Between Security Tokens And Tokenized Securities
Units of the token give the holder access to dividends in exchange for investing in a new project.
A technological representation of a company's security (traditional assets like stocks and shares).
Startups can issue security tokens as a way to raise funds for their projects without making investors shareholders in their company.
Purchasing tokenized securities means the investor is now a shareholder in the company, in the same manner as when they buy shares on a stock exchange.
Controversy still surrounds how security tokens will be regulated, either under existing securities law or a new framework.
It is regulated under existing securities law since it is only a new distribution channel for a company’s share capital.
New products penetrating financial markets.
Familiar assets wrapped with new technology.
Investors are usually paid dividends for holding the tokens. Additionally, they stand a chance to earn more in the future if the project succeeds, leading to an increase in the value of the token.
Profits that investors gain from tokenized securities are the same as in the traditional finance market.
Security tokens are usually issued by the startup through a process called Security Token Offering (STO).
Companies liaise with tokenization startups like Polymath to transfer their company’s securities unto blockchain technology.
Reviewing the information above shows that security token differs from tokenized securities and as such should not be confused with each other.
However, as stated earlier, it would be unfair to penalize someone for confusing both terms, though there would be little reason for you to do that, now you have a clear understanding.