A Beginner’s Guide To Security Tokens

You might not understand many financial terms when you are just starting your journey as an investor. However, that is okay as everybody has to start somewhere. If you have come across the terms ‘security tokens’ or ‘digital securities’ while researching the different ways to invest and have a mind full of questions regarding them, you’ve come to the right place.

To give you more clarity on this topic without further ado, here’s everything you need to know about security tokens -

What exactly are security tokens?

Digital securities is just another name for security tokens. These are financial securities that are present in the digital format and have a blockchain-based structure. This enables them to offer investors more liquidity and accessibility to the various investment options like stocks, funds, bonds, and other similar assets. Investing in security tokens is regulated in the majority of countries. ADDX is one such platform where investors can buy/sell digital securities and it is regulated by the Monetary Authority of Singapore (MAS).

How are these digitized securities useful?

Here are the major benefits of digital securities -

Cost-efficient

Digital securities play a significant role in democratizing the financial world by making these assets accessible to a larger group of people. With the help of these security tokens, one can start their investment endeavor for a far lesser price than the traditional physical assets that require a huge capital amount. For example, when investing in real estate, you do not need to buy the entire property anymore, with the help of digital securities, you can buy fractional pieces of the same and easily make real estate a part of your investment portfolio.

ADDX is one such platform where accredited investors can easily invest in digital securities like private equity, hedge funds, REITs, and other similar assets that would require a rather large sum to invest in traditionally.

Additionally, since all the transactions of security tokens are done digitally, the regulators, issuers, and traders, do not have to invest in costly infrastructure. This essentially brings down the cost of transactions for all the involved parties.

Secure

Regulating physical securities is a difficult task and can be filled with a lot of loopholes. However, the securitized tokens have a lot more fail-safes comparatively. For starters, the blockchain technology that backs these digital tokens is made up of nodes and each transaction is recorded on several nodes. This makes the information repetitive and as a result of this, the loss of data or its manipulation is nearly impossible. Since all the background processes that take place when you make a transaction occur automatically, the need for a third party to maintain a record of the transactions is entirely removed.

Extended functionality

There are a few regulations of the private equity market that need to be followed to make any transaction of such digital securities authentic. To clarify further, the maximum number of investors that an equity can hold is limited to 99 at any given instance; it is also important that each of these investors is accredited and that none of them can hold more than 10% of the total equity.

Such rules are hard to implement in physical securities as they essentially mean a larger investment in the infrastructure that supports such transactions. However, since the security tokens are supported by blockchain technology, these rules can be directly programmed into them. This increases the liquidity of the tokenized securities and also drastically brings down the cost to implement these regulations in the private equity market.

Additionally, since blockchain technology is highly programmable, it also makes it easy to add some more functions to these security tokens. Automating the payment of dividends, the process of voting, the enforcement of different share classes and even providing discounts to the investors for any availed real-world services, digital securities can easily be programmed to provide more functionality to all the parties involved in a transaction.

More competition

The more market players an industry has, the more opportunities, benefits, and security the customer gets. Similarly, since all such transactions are based on blockchain technology, it makes it easier for the equity issuers and other involved financial structures to cater to a wider range of people.

To help you understand this in a simplified way, let us look at an example — hedge funds are a type of digital asset that often use manual and outdated procedures; this limits the speed at which they can function and, as a result, bars the number of people they can cater to. However, with these tokenized securities, all the relevant processes that need to be initiated and completed when making a transaction are done automatically and easily. This increases the accessibility the private market provides and essentially opens it up to new market players like ADDX, ensuring you get more opportunities, choices, and even a better service!

Start your investment journey in the private market with ADDX. It is a proprietary platform that lets you invest with as little as $10,000! Get the opportunity to add to your investment portfoliofinancial assets like pre-IPO companies, unicorn start-ups, hedge funds, and other similar investmentsthat would traditionally require very huge capital to start with. ADDX is regulated by the MAS (Monetary Authority of Singapore) and is open to all non-US accredited and institutional investors.