When Is a Token a Security

Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.

Tokens provide either utility or represent securities.

Utility tokens give access, the right to vote, reputation, and more.

Security tokens represent an equity ownership stake as an investment.

These tokens come with regulatory oversight.

Utility tokens have no regulation.

Security tokens are similar to stocks, bonds, and other investment vehicles.

Traditional securities laws apply to security tokens.

They must be traded on regulated exchanges.

Gains and losses must be reported, and taxes must be paid.

Laws specific to security tokens are not yet fully defined so it’s best to wait for the final regulations.

Security tokens bring additional advantages over traditional stocks such as fractionalization.

One doesn’t have to buy an entire share but rather smaller slices of ownership.

One can automate the investment process using security tokens.

Security tokens provide greater liquidity to assets by representing the asset online.

These tokens provide greater market access and allow for new innovation.

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