Chapter 5: Security Tokens

This chapter synthesizes the economics, law, and technology of security tokens and security token offerings (STOs). Security tokens are an increasingly important instrument in decentralized finance (DeFi) markets. They are blockchain-based investment contracts that are subject to securities law. Interoperability, fractional ownership, market liquidity, and rapid settlement are the main reasons security tokens are a primary catalyst for digitizing finance. The chapter empirically compares STOs with initial exchange offerings (IEOs) and initial coin offerings (ICOs). STOs take longer and raise more funding. However, controlling for other factors, the amount raised in STOs and IEOs is lower than in utility-token ICOs. These findings suggest an avenue for future research. Moreover, both the law and the technology of security tokens need to address critical challenges related to the competent jurisdiction in multinational activities and blockchain interoperability, scalability, and natural resource degradation.