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Token assets are a new type of asset class that have emerged with the advent of blockchain technology. Today, there are categories of assets like payments, ownership, security, and utility, and they are being combined to deliver better solutions to users. Security tokens, in particular, have shown promising solutions. Their security aspect has been looked into in order for them to be utilized for issuance & notary services, clearing & settlement, as well as custody & safe keeping services.
They have proven to strike a balance between transparency and risk mitigation. Moreover, authorities around the world now acknowledge that security tokens can provide clear added value in terms of transparency, efficiency and enhanced reporting. They are viewed as securities of the future that can not only solve real-world problems but also be traded across borders.
Security Tokens as Securities
Security tokens offer enormous potential to tackle a wide range of real-world problems. These tokens primarily provide ownership rights. For example, a security token can represent practical ownership of a certain property or a financial instrument like a government bond. As a result, some authorities have decided to classify them as securities because they can constitute a claim to partial ownership.
Moreover, these tokens satisfy the three major criteria: transferability, negotiability, and standardization. This criterion is necessary for any asset to be classified as a security under the European law. The transferability factor allows token ownership to be transferred to others via secondary markets. Similarly, the negotiable factor refers to the ease with which the tokens may be transferred to others.
The standardization factor, on the other hand, classifies transferable tokens as securities. It means that the tokens…
