Security token

A security token gives its holder rights similar to those of a traditional security: a stake in a company, a claim on interest payments, a share of revenue or ownership of a fund. Because of those rights, it falls under securities law, and its issuance usually requires a prospectus or an exemption, plus investor checks.

Issuers use smart contracts to automate tasks such as dividend payments and to enforce transfer restrictions, for example allowing only verified wallets to hold the token. After the ICO boom, security token offerings (STOs) were promoted as a compliant alternative, and the idea has since grown into the wider tokenization of real-world assets, including tokenized Treasury funds and bonds issued on public blockchains.

Security tokens usually trade on licensed platforms with limited liquidity, and holders depend on the issuer and its legal structure, not just on the code. The label also matters for tokens that never called themselves securities but that regulators later judge to be.