Due to a high number of scam cryptocurrencies, many investors have lost confidence in this form of investment. By creating security tokens the legal situation should be clarified and scam should be prevented through regulation.
BaFin divides tokens into three categories, namely utility tokens (access to certain services and products), payment tokens (alternative means of payment), and security tokens (membership rights and contractual claims to assets, right to dividends, repayments, interest, and participation). Equity tokens which are used as company shares and voting rights are one form of security tokens. Here are the key features of a security token:
- It’s an investment;
- The investment is made in a company or a group of companies;
- There is an intention to profit;
- The expected profit is generated by the investment.
As soon as these criteria apply to a token, it’s subject to the same conditions as traditional securities. This applies above all to the reporting obligation and liability.
Since security tokens can thus reflect values of traditional investment markets, there is a place for enormous potential. By tokenizing securities and other assets, users can save considerable costs. Using smart contracts can eliminate the need for middlemen without sacrificing security. They also benefit from global accessibility.
Well-Known Security Tokens
Many security tokens are already tradable on public exchanges and offer investors the best options. Due to the increasing demand and constant growth in this area, security tokens could prove to be a profitable long-term investment.
Nexo: Security Token and Utility Token
The Nexo company offers its customers instant loans through cryptocurrencies. A token used by the company is a ‘hybrid’ of a utility token and a security token and serves as proof and means of payment for services. Investors receive a share of the company’s profit, which is distributed among the Nexo token holders through smart contracts.
The Polymath cryptocurrency makes it possible to create and publish your own security tokens. Being the market leader, the company is one of the best providers of financial services which has already helped numerous projects with the publication of their tokens. It uses its own cryptocurrency which can be traded on the Binance exchange under the POLY Ravencoin ticker symbol.
Ravencoin is another provider for creating your own tokens. This is a modification of the Bitcoin code, which has existed since 2018 and works decentrally. Application examples are security tokens and shares, proof of sharing, digital assets and gaming objects, proof of access, land deeds, and many more.
The FTX exchange allows to trade in derivatives and warrants. Customers can use leverage to bet on the price of various cryptocurrencies. There is also an option to bet on Bitcoin’s hash rate or market volatility. This offer is unique so far and has caused a lot of discussions. The exchange’s own FTX token (FTT) also serves as an equity token and thus as proof of receipt of a dividend.
What other security tokens do you know? Feel free to share your knowledge in the comments. Have a great weekend!