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[Delio] Understanding the types of security tokens: equity tokens, asset-backed tokens, and debt tokens | Security Token Offerings from A to Z (Part 2)

In the world of cryptocurrency, tokens have become an increasingly popular way of raising funds for a variety of projects. Initially, ICOs were considered to be industry-killers. However, due to the regulations’ swift address to protect investors from fraud, many businesses are having problems adhering to regulations and managing their finances. It fuels the growth of STOs.

In the first block of the STO series, we covered the general idea of the security token, why ICOs crashed, and why security tokens are the future of finance.

Today, we will take a deeper look at 3 commonly known types of security tokens: Equity Tokens, Asset-backed Tokens, and Debt Tokens.

What are Equity Tokens Offerings (ETOs)?

Equity Tokens represent ownership in a company, similar to traditional stocks. However, instead of being issued by a company, they are issued on a blockchain.

Equity Tokens can provide a range of benefits to investors such as reduced costs, fractional ownership, and global access. As the tokens are issued on the blockchain, they can also provide increased transparency and security for investors.

Equity Tokens can be used by early-stage companies to raise funds without having to go through the traditional funding channels. This is particularly useful for companies that may not have access to traditional funding or may not want to give up control of their company to traditional investors. Equity Tokens allow companies to raise funds from a global pool of investors and can provide investors with a stake in the company’s success.

Benefits of Equity Tokens

Equity Tokens provide investors with several benefits, including:

  • Fractional Ownership

Equity Tokens can be divided into fractional ownership, allowing investors to purchase small portions of a company. This can be particularly useful for investors who may not have the financial means to purchase a large amount of traditional stocks.

  • Reduced Costs

Equity Tokens can reduce costs for both companies and investors. Companies can avoid the high costs associated with traditional funding channels, such as investment banking fees. Investors can avoid brokerage fees, which can be high for traditional stock purchases.

  • Global Access

Equity Tokens can provide global access to investors. As the tokens are issued on a blockchain, investors from all over the world can invest in a company. This can provide companies with access to a much larger pool of potential investors.

  • Increased Transparency and Security

Equity Tokens can provide increased transparency and security for investors. As the tokens are issued on a blockchain, all transactions are recorded and transparent. This can provide investors with increased confidence in the company and its management.

Equity tokens include some tZERO, The Elephant Private Equity Coin, Neufund, and BFToken.

What are Asset-backed Tokens?

Asset-backed Tokens, as the name suggests, are tokens that are backed by real-world assets. These assets can be anything from gold and silver to real estate or artwork. The tokens represent ownership in the underlying asset, and the value of the token is tied to the value of the asset.

Asset-backed Tokens provide investors with a way to invest in real-world assets without having to own them physically. This can be particularly useful for investors who would like to invest in assets that are difficult to purchase or store.

Benefits of Asset-Backed Tokens

  • Increased Liquidity

Asset-backed tokens allow investors to easily buy and sell assets without the need for intermediaries such as brokers, banks, or clearinghouses. This can lead to increased liquidity and faster settlement times, which can help reduce transaction costs.

  • Fractional ownership

This means that investors can purchase a small portion of an asset, rather than having to purchase the entire asset. This provides investors with increased access to assets that may have been previously out of reach.

  • Transparency

Asset-backed tokens are stored on a blockchain, which is a decentralized ledger that records all transactions in real time. This makes the ownership and transfer of the tokens transparent and secure.

Risks of Asset-Backed Tokens

Like any investment, asset-backed tokens may be subject to regulatory risks. Regulations around asset-backed tokens vary from country to country, and many countries are still in the process of developing regulations. This can create uncertainty for investors and may result in additional costs or restrictions on the investment.

What are Debt Tokens?

Debt Tokens represent a promise of repayment of a loan. Unlike Equity Tokens, which represent ownership in a company, Debt Tokens represent a liability.

The tokens are issued to investors who lend money to a borrower. The borrower then repays the loan with interest, and the investors receive their investment back plus interest. Debt Tokens can provide investors with a predictable return on their investment and can be a useful way for borrowers to raise funds without having to go through traditional lending channels.

Benefits of Debt Tokens

  • Liquidity

Debt tokens can be traded on cryptocurrency exchanges, making them highly liquid and easy to buy and sell.

  • Transparency

Debt tokens are typically issued on a blockchain, which provides a high degree of transparency and immutability. This means that investors can be confident that the underlying debt obligations are genuine and can be verified.

  • Diversification and efficiency

Debt tokens can provide investors with exposure to a diversified portfolio of debt obligations, which can help to reduce risk. Moreover, it also can be traded instantly and without intermediaries, which can help to reduce transaction costs and increase efficiency.

Debt tokens include some US Treasury bonds, corporate bonds, and mortgages.

The summary of the Equity, Real-Asset, and Debt tokens are in provided in the table below:

Source: Yumpu

Bottom line

In conclusion, Equity Tokens, Asset-backed Tokens, and Debt Tokens are three different types of tokens that can be used to raise funds or provide investment opportunities. Each type of token has its advantages and disadvantages, and investors should carefully consider the risks associated with each type of token before investing. As the world of cryptocurrency evolves, we can expect to see more innovative ways of using tokens to provide value to investors and borrowers alike.

※ To get the full list of ongoing and upcoming STO, please check the calendar below:

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Delio is a certified crypto bank for digital asset management. Established in 2018, the company has acquired business licenses: Money Services Business (MSB) license in the US, and Virtual Asset Service Provider (VASP) license in Korea.

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Delio Digital Asset Finance Group, established in 2018, is №1 fintech company based in Seoul and acquired digital asset licenses from Korean and US governments.