Security token

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A security token is a digital asset that represents a tokenized security. Security tokens can be considered a form of cryptocurrency. While cryptocurrencies are not necessarily backed by anything like equity or fiat currency, security tokens are necessarily backed by such assets. They are considered a form of investment. They are regulated by the SEC.[1]

Security tokens are distributed in STOs, or security token offerings. Security tokens are not to be confused with utility tokens, which function differently.[2]

Regulation

For a digital token to be qualified as a security, it must pass the Howey Test, which was developed by the SEC.[3]

References