Why are Asset-Backed Tokens Categorized as Securities?
Cryptocurrencies are here to stay, and it is almost certain that they will be adopted globally over time. The only question is when this will take place. The concept of Asset-Backed Tokens stands out among the numerous use cases that have emerged in the crypto space. This is no coincidence; ABT functions similarly to traditional stocks and securities in digital representations of physical assets. Assets are understandable and are regarded as traditional forms of investment.
Given the similarities between ABT and traditional stocks, it is worth investigating whether Asset-backed Tokens can be classified as securities. ABTs are classified as securities in all aspects. This article will explain why this is possible despite the fact that they are still in their early stages and are based on the blockchain.
Before delving into the justification of ABTs as securities, let us first define securities and explain why they have become so important in global economics.
Securities are paper assets that can be purchased and sold on the stock exchange. Despite the fact that they exist only on paper, they have transferable values that represent a share or portion of investment in a project or company. Securities are so-called because they represent physical assets such as real estate, gold, crude oil, and virtually any other tangible and valuable asset.
Securities typically have well-defined financial terms that are represented in contracts. This allows them to be liquid assets that can be easily bought and sold and used as collateral when the need arises. The stock exchange is the most prominent securities market, and shares are the most traded form of securities.
Bonds, stocks, preferred shares, and EFTs are examples of traditional tradable securities. Marketable securities include money market instruments such as futures, hedge funds, and options.
This brings us back to asset-backed tokens and how they resemble traditional securities in many ways.
ABT as Securities
Asset-backed tokens are very similar to traditional securities assets. Although they are relatively new, the core functionality still represents how traditional securities work.
ABTs are digital copies of physical assets. They represent valuable assets such as bonds, venture capital, real estate, crude oil, and so on. The only difference is that ABTs are only available on the blockchain and are represented by digital tokens, which are also known as digital securities.
Unlike traditional securities (stocks and shares), which are available after an Initial Public Offering, ABTs are available after an Initial Exchange Offering or an Initial Coin Offering. Unlike other types of cryptocurrencies, most ABTs run on dedicated, private blockchains that have been configured specifically for that purpose. All investors are required to complete a Know-Your-Customer (KYC) procedure to ensure their authenticity. This is similar to the information provided by an investor during the initial stage of purchasing securities.
Additionally, platforms like Tokenizer that deal in asset-backed tokens are usually regulated and registered with securities and exchange commissions in the respective country of registration. They are usually bound by terms specified by agencies such as FINRA, FCA, and SEC. This legal existence further serves to reference the nature of assets that ABTs represent.
Why ABTs Stand Out
Asset-backed tokens represent the evolution of assets. We no longer have to go through the time-consuming process of finding a broker, paying fees and commissions, and waiting for days or weeks before completing the transaction. From initial registration to token purchase, the entire process could be completed in a matter of minutes with ABTs. Tokenisation and asset trading can also take place without the involvement of a middleman, firm, or broker. Digital securities ensure ease and simplicity.
Furthermore, digital securities cannot be manipulated. With the help of blockchain technology, which is the foundation of the infrastructure, all transactions are permanently recorded. This lends a sense of legitimacy to the entire process of token generation and asset trading.
Digital securities are the next generation of securities and assets. It is a solution that has emerged as a result of technological advancement. It has enormous benefits for both investors and organisations because it removes intermediaries and other barriers to fundraising and investment.
Asset-backed tokens are blockchain-based digitised securities. From every angle, they function just as well as the traditional notion of paper assets and value that are domiciled in the securities exchange market.
For more details about BlockX, check out the links below: