Unlike utility tokens, security tokens are tied to real securities that represent tokenized assets. In some cases, these tokens represent real capital in the enterprise, that is, they play the role of a “digital share”. A security token is not necessarily tied to a share in a company; they can be used to divide the owner’s rights in relation to a wide range of assets, from real estate to art. In fact, they may grant the holder a number of rights. This could be shareholding, periodic dividends, finance inflows, debt payments, voting rights, and more. All these rights are secured by a smart contract that controls tokens.

What is important is the fact that, due to the peculiarities of these tokens, from a legal and regulatory perspective, they are treated quite differently. Their value is backed by securities, therefore security tokens are considered an investment. In addition, this means that additional regulatory requirements and reporting requirements are imposed on the companies issuing them.