Equity Tokens vs. Security Tokens: What’s the Difference?

It has become crucial to differentiate between the various tokens in the market in recent times. This is mainly because of the quick evolution that the crypto market has seen. It is now important to separate the different takes based on their features and capacities. For investors, this is important for investment purposes. But for regulators, it is important so that standards can be established in an otherwise unregulated market. There are currently five classes of tokens which include; security tokens, equity tokens, utility tokens, debt tokens, and currency. We will focus on equity and security tokens to identify their differences.

Equity tokens

Equity tokens are simply currency stocks. In the digital world, these tokens represent the shares that an investor owns in a particular company. By having equity tokens in a particular company, an investor is entitled to a certain percentage of the profits accrued by the company. These stocks differ from traditional stocks, however. While traditional records for stocks are made in the corporate records, equity token stocks are recorded on the blockchain.

The differences, however, are not too vast between traditional stocks and token stocks. Equity tokens are simply an improvement on what was already in the market. There are many kinds of equity token stocks that an investor can hold at any particular moment. Equity tokens are still in the very early stages in the market. Not many companies issue equity tokens but this is changing. As marketplaces get licensed and regulation becomes clearer, the tokens will have a much bigger role to play in the market.

Security tokens

Security tokens, on the other hand, are more of assets than shares. Acquiring security tokens in a particular company does not simply represent ownership of the company by an investor. Investors hope that the assets they have acquired will gain value with time. Most cryptocurrencies do not qualify to be security tokens. This is because traditional cryptocurrencies take value from the market while security tokens gain value based on corporate performance.

The key issue that distinguishes security tokens from other kinds of tokens is that they can take the form of most assets. It is possible to have tokenized securities from various kinds of assets. For an asset to be identified as a security, it needs an investment from a consumer and it must be part of a common enterprise. The objective of the investment must also be profit-making as a result of the efforts of other parties. Security tokens are thus part of an enterprise and investors make investments in the hope of getting returns.

The token market

There are a number of issues facing both security tokens and equity tokens. To start with, the regulatory frameworks are still a huge issue as they present uncertainty. Regardless of this, some tokens have already become quite popular in their realms. Security tokens have for instance gained huge acceptance and there are a number of platforms that support them. There are also big plans to develop exchanges. With timely regulation and standards, the crypto tokens market will undoubtedly take off dramatically.

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