A security token represents a digital representation of traditional financial securities — bonds, ETFs, commodities, futures, options, stocks, and similar assets. For example, a single token could represent one share in a company whose shares have been “tokenized.”
Security tokens can also be used to authenticate the identity of their owners. Represented or “tokenized” as a cryptocurrency token on a blockchain network, traditional forms of securities can now be stored more securely and transferred instantly around the world.
Unlike utility tokens which perform a function on a blockchain network such as paying use fees, security tokens allow one to purchase a fraction(stake) of ownership of the project itself.
As with traditional securities, security tokens are protected by national regulatory bodies such as the SEC in the US and FINMA in Switzerland.