Security Tokens — Voting Rights and Governance
A key component of a security token is having protocols like KYC (know your customer) and AML (anti-money laundering) in place to ensure that the token is regulated sufficiently to ward off potential fraudulent users. This is verified on the blockchain. Topics like asset value, registration, dividend payouts and other key issues a company must decide upon with its owners through voting and governance. Unlike a traditional corporation however, companies issuing equity or debt through security tokens must make decisions with token holders over the blockchain in a decentralized manner.
Such governance can be done in two different ways: on-chain and off-chain. As it may seem, on-chain governance is built into the blockchain, while off-chain takes place through some sort of centralized application. On-chain governance includes a voting system that is built into the token protocol, ensuring that there is no way to tamper with votes as they are a part of a private blockchain. An increasingly common strategy is having some kind of hybrid strategy that provides security by having some processes on-chain, but also has the user facing aspect remain off-chain for user-friendliness.
The voting system is most important for the success of security tokens, as like a traditional share of stock voting amongst holders is key for making company decisions. Each token holder has the right to vote on things that apply to the company itself or the token as a security. These voting rights are divided into two main classes: native asset voting rights and crypto voting rights. Native asset rights deal with things that pertain to the overall performance and state of a company. Examples of this include changing of the board members of a company, dividend payout, additional capital raising and compensation. Obviously, any holders of a security token should have a say in these decisions just as stockholders do. Crypto voting rights are concerned with how a token is created and traded. This can entail the exchanges a security token may be listed on, how many tokens are in circulation, or whether or not a decentralized exchange should be used as well. The development of voting rights in security token are ann extremely important factor in determining just how successful security tokens can be. If they develop into a vehicle that investors feel confident in buying and holding as they do with stocks now the future is quite bright, and the integration of voting rights into the security token protocol will go a long way in aiding this progress.
