The emergence and proliferation of security tokens, their distinguishing features, and correlation with cryptocurrencies

Abstract

The paper examines the correlation between crypto-products, which are digital assets with intrinsic value and negotiability, and cryptocurrencies and security tokens (investment tokens). The author's analysis of the technical and financial aspects inherent in cryptocurrencies and investment tokens, due to their technical architecture and use in financial transactions, identifies their features. The features of cryptocurrencies include: creation and operation using blockchain distributed ledger technology, decentralized nature, transparency and security of transactions, complete anonymity of users, ability to act as a digital expression of value, turnover, absence of an issuer and collateral, value formation depending on market demand, and interchangeability. The features of security tokens include: their creation and functioning with the help of distributed register technology (at the present stage, mostly blockchain); their centralized nature, acting as a digital expression of value; their use for investment purposes; their issuance by the issuer, which entails certain obligations (payment of dividends, consideration of the owner's position in voting, etc.); and other factors (initial value set by the issuer, income potential of the project, etc.) that affect the formation of value in addition to the demand on the market (initial value, set by the issuer, income potential of the project, etc.); interchangeability. It is asserted that despite a number of common features, security tokens differ from cryptocurrencies. The identification or definition of security tokens as types of cryptocurrencies is erroneous.