What it is
A security token is a type of digital asset that derives its value from an external, tradable asset. Unlike utility tokens, security tokens represent an investment contract, often subject to securities laws. They can represent fractional ownership in assets such as real estate, fine art, or shares in a company, with ownership records maintained on a distributed ledger. These tokens aim to offer increased liquidity, transparency, and efficiency in transferring traditional assets through blockchain technology, enabling wider access to investment opportunities.
Security tokens appear in markets when firms tokenize traditional assets, seeking to create new investment vehicles or streamline existing ones. Regulatory bodies like the SEC scrutinize these tokens under the Howey Test to determine if they qualify as securities, requiring registration or an exemption. Their regulatory treatment affects their issuance, trading, and the platforms that support them. Following stories about security tokens involves understanding their underlying assets and the applicable securities laws governing their issuance and secondary market trading.
Why it matters
Security tokens offer new ways to invest in traditional assets, potentially increasing liquidity and access to markets previously restricted. Understanding them helps you assess new investment opportunities.
Reviewed under editorial standardsUpdated September 26, 2026Not investment advice