What Is a Security?

Security is a negotiable financial instrument representing underlying value and involving an investment expecting profit.

While many tokens in the digital economy can be considered securities, they may not possess all the conventional elements of traditional security.

Leveraging Securitization

Securitization is a process that involves packaging cash flows from assets, including obligations, and selling them to investors.

It provides asset holders with liquidity and offers investors access to value.

This process is used to create traditional securities and has relevance in various use cases for security tokens and emerging digital asset finance practices, such as NFTs and DeFi.

Securitization presents opportunities for investors and enhances marketplace liquidity by freeing up capital for originators, who are the companies holding the assets.

Transforming Ownership

Security tokens enable fractional ownership of assets.

They achieve similar outcomes as traditional securitization by allowing illiquid asset owners to access their investments.

However, they are typically used to divide the value of high-value assets rather than pooling the value of multiple low-value assets.