Security tokens are crypto tokens which emulate the functionality of regular securities, i.e. they act as tradable financial assets such as equities, bonds, options, etc. These tokens are increasingly seen as a new investment tool which is gaining traction among both crypto enthusiasts and mainstream investors, especially in the USA and Latin America. In Brazil, for example, one of the largest investment banks Banco BTG Pactual has recently launched its own security token ReitBZ which will be backed by real estate assets.
In the USA, individuals such as Carlos Domingo, Juan Cappello and Juan Villaverde promote security tokens as a new source of liquidity provided by the rising crypto markets. Security tokens are designated as such based on the criteria from the Howey test, which prescribes that these tokens must represent a financial investment which should go to a company or a group, with the investors seeking to profit from acquiring these tokens.
Security token model should offer several advantages over the ICO one, particularly in the field of security, lower taxation and general costs for investors, faster trading without intermediaries and an access to a global market. Yet, the model still has to prove its maturity, which mostly refers to its relative novelty, regulatory and accreditation demands and general acceptance.