Why Crypto Investors Need To Differentiate Between Security Tokens And Tokenized Securities

Why Crypto Investors Need To Differentiate Between Security Tokens And Tokenized Securities

After a year in which Initial Coin Offerings (ICOs) have experienced different regulatory challenges, security tokens are starting to enter the market. However, security tokens are completely different from tokenized securities, and it is not just semantics.

In a recent article released by Noelle Acheson, member of CoinDesk’s product team, she explains the main differences related to these two definitions.

As regulators are starting to pay closer attention to the cryptocurrency and blockchain markets, security tokens are a new definition that has spread in the space. According to Acheson, we must be careful when we say security token and tokenized security. Using them interchangeably is confusing and also misleading. They are so different that they can even be regulated differently.

Acheson says that tokenized security is a new technology representation (which is shown as a token) that shares some qualities with traditional securities. A security token is different since it refers to a traditional asset (a security) that is wrapped in a new technology.

Regulatory agencies around the world made it clear that the use case is the focus and not the technology behind them. Tokenized securities are simply modifications of familiar assets in order to enhance their liquidity. These products are not new for regulators, thus it is much easier to be approved.

However, security tokens are a new product that work in a different way. Regulatory agencies have now to understand how to better regulate these new assets. Thus, the risks related to them are higher than with tokenized securities. In the near future, the market will have many new projects related to securities and tokens.

Security tokens will be behaving in a similar way to applications that are difficult to foresee. Some examples are Snapchat, Twitter or Tinder, among others. Blockchain-based assets will also have a deep impact in capital markets, improving inefficiencies and access.

In sum, tokenized securities are already here and there will be a lot of progress being made regarding this issue. Meanwhile, security tokens are still trying to find their place in the market.

 

Source: bitcoinexchangeguide.com