What tokens can be considered Security

What are security tokens?

14 Dec, 2019 David Kemp

There are various ways to solve the problem of a lack of funds for project development. Some rely solely on their own strength, others find a large investor. Another way is to use security tokens. Let’s explore its essence.

What are security-tokens?

Security tokens are analogous to shares. Their owner owns part of the business. The system works on the basis of blockchain technology. Article "What are tokens?" will help to understand these tools better. Security Token offers (STO) is a form of investing in blockchain projects using security tokens. They began to appear in late 2017

Examples of Security Tokens are KODAKOne, AspenCoin and Libra Investment Token. Secondary trading of these assets is carried out through the Tzero and Harbor platform. Nasdaq stock exchange and cryptocurrency platform Binance promised to start with these tools in the future.

How legal are security tokens?

The United States Securities and Exchange Commission (the SEC) in 2018 made it clear that it will equate blockchain tokens to securities. As a result, many investors have come to view tokenized crypto assets as a new class of property.

A number of blockchain startup founders use the name Utility Tokens in relation to their tokens. This means that they are used to power the platform, for example,  Ethereum. The owners of such assets do not own a share in the company. Usually, investors buy tokens of this type in the hope that they will repeatedly grow in price in the future and help to earn well.

Security Tokens are those crypto assets that meet SEC standards and allow you to have a stake in the company. The technology on which they are built has no fundamental solution.

What tokens can be considered Security 

The SEC head Jay Clayton during his speech before the US Congress explained that almost every token that is issued during the implementation of the ICO is considered a security. Even if the companies themselves call them Utility, it doesn't matter. They meet SEC requirements for a regulated securities product. Legally, these assets are no different from the shares that flood the market.

The securities exchange act, passed as early as 1934, defines examples of securities. A clearer definition can be found in SEC vs. Howey. It follows that the security must include:

  • Joint venture
  • Consumer investment
  • Expectation of profit, which will be received at the expense of work of other persons

The SEC believes that there is no need to assign tokens ownership rights to something in order for them to meet the Howie test. It is only necessary that investors acquire them in order to make a profit in the future through the development of the underlying firm. It is not necessary to own a share of the company, as is the case with shares. 

As you can see, there is no single perception of Security Tokens. Someone puts in this definition the concept of a crypto asset, which is equated to shares and allows you to influence the decisions made by the company if there is a corresponding share. But the SEC significantly expands the list of what can be considered Security tokens. Why not try yourself as an investor? Some projects allow you to purchase tokens for only a few dollars. On our portal you can find recommendations on the choice of investment projects.