A security token is a blockchain-based digital asset that represents ownership in a real-world financial asset, such as equity in a company, a share in real estate, or a portion of a debt instrument. These tokens are issued through Security Token Offerings (STOs), which resemble traditional investment offerings but operate on decentralized infrastructure.
Unlike utility tokens, which provide access to a service or network function, security tokens are legally categorized as securities and must comply with financial regulations such as the U.S. SEC’s Howey Test. This means they are subject to disclosure requirements, investor protections, and other legal frameworks.
Security tokens are gaining popularity because they allow for programmable compliance, 24/7 trading, and fractional ownership. However, they also carry regulatory complexity and face limited exchange support compared to traditional crypto tokens.
