How are Security Tokens Traded?
Security tokens represent ownership of real-world assets and are particularly gaining traction through Security Token Offerings (STOs). The trading process involves several steps:
- Initial Issuance: Security tokens are created and issued during the STO, where investors can purchase them directly from the issuer.
- Exchange Listing: After the initial offering, security tokens can be listed on specialized exchanges that support regulated trading. This allows for increased liquidity.
- Secondary Market Trading: Investors can buy and sell security tokens in secondary markets, similar to how traditional securities are traded. This often involves the use of smart contracts on blockchain platforms.
- Compliance and Regulation: Trading security tokens must adhere to regulatory requirements, including KYC (Know Your Customer) and AML (Anti-Money Laundering) practices to ensure compliance with financial regulations.
- Settlement: The settlement of trades can be automated through blockchain technology, ensuring transparent and immutable record-keeping of ownership transfers.
As blockchain technology matures, the trading mechanisms for security tokens continue to evolve, promoting greater efficiency and accessibility for investors.