As explained in the video above, Security Tokens are digital assets that represent some real world underlying Asset. The digital nature of the token enables token holders to trade with other markets, investors, and asset owners globally.
A security token is a blockchain-backed representation of equity or debt in an underlying asset. And this is according to a programmable set of rules, guidelines, and parameters to comply with securities law. These instructions, which are programmed into each token upon development, may include but are not limited to:
- The amount of the underlying asset that each token represents
- Type of investors allowed (Retail, Accredited, Qualified, Institutional)
- Jurisdictions allowed for investors
- Investment instrument type
- Distributions (percentage, amount, tiers)
- Lock-Up Periods or trading limits
- Number of total tokens issued
Some or all of these parameters can be coded into each security token via smart contracts and self-governed with limited intermediary actions, although there’s still a fair amount of activity involved with third parties.
Smart contracts are digital if-then statement actions that enable the automatic execution of the pre-programmed rules (including the parameters listed above). These rules work in tandem with additional technology services and licensed financial groups like Transfer Agents, Broker-Dealers, and Alternative Trading Systems (ATS) to create a healthy and thriving ecosystem that enables the fractionalization of ownership, real-time trading & settlement, global capital access, and reduced execution fees relative to the incumbent markets.
Alec Beckman is the Director of Digital Assets at Infineo, bridging together Whole Life Insurance policies and digital blockchain based issuance.
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