How investments via security tokens work

Expensive watches, valuable artworks, or luxury real estate were once only affordable for high earners, but now you can invest in tokenized investments with a small amount of money.

Expensive watches, valuable artworks, or luxury real estate used to be out of reach for high earners, but now you can invest in tokenized assets with a small amount of money. The idea behind a Security Token is to map a specific asset on the blockchain as a token. This could be, for example, a Rolex, a rare artwork, or a classic stock.

In terms of regulation, security tokens sit on the same footing as traditional stocks and are treated as such by regulators. This includes, for example, creating a securities prospectus that contains all the key information about the issuing entity. When digital securities are issued, the requirements of the respective financial regulator must be met.

The main difference between digital and traditional securities is the medium. While security tokens exist on a specific blockchain, traditional bonds and stocks, for example, need to be documented.

Security Token: What are the advantages of digital securities?

The 'splitting' of assets through tokenization brings several benefits. They mainly relate to costs, processing speed, and liquidity. This lets issuers economically create asset classes in small quantities that were previously unattractive due to costs. Small investors also benefit, because they gain access to assets that were previously available only to professional and institutional investors.

In the future, it’s reasonable to expect that, at some point, all securities will be traded digitally. So it makes sense to start using this new digital medium for securities early.