Security Token
A token representing a regulated investment — equity, debt, or a share of profits — and subject to securities law.
A security token is a financial security that happens to live on a blockchain. It might represent shares in a company, a bond, real estate, or a claim on revenue. Because it is a regulated investment, it falls under the same rules as stocks: disclosure requirements and limits on who is allowed to buy.
In the US, regulators apply the Howey test — if buyers expect profit from the efforts of others, it is likely a security. That framing has swept up many tokens their issuers called 'utility.' Security tokens promise compliant, blockchain-native versions of traditional assets, but the market stays small, hemmed in by the very rules that define it.
Related terms
A token that grants access to a product or service rather than ownership, used to pay for usage inside a network.
TokenA digital asset issued on top of an existing blockchain, usually through a smart contract rather than its own network.
ICO (Initial Coin Offering)A crowdfunding method where a project sells a new token to the public to raise capital.
KYC (Know Your Customer)The identity checks financial firms run to confirm who their customers are before opening accounts.