Breaking Down Security Tokens: What You Need to Know About Tokenized Assets in 2025

Samantha Jordan December 25, 2025 05:08 PM

Security tokens explained: Blockchain's revolution bringing traditional assets to crypto. Navigate regulations and invest in the growing $15-18B market in 2025.

Table of contents

With‍‌‍‍‌ the numbers escalating to nearly $6.7 billion in 2025 (data from Market Reports World), the security token market has become a significant part of the crypto world, and yet it remains largely incomprehensible to many people. Here at CoinMinute, we've been tracking this evolution closely, and the complexity still surprises even our editorial team.

Understanding‌‍‌‌‍‌‍‍‌‍‌‍‍‌ the Basics of Security Tokens

Compared with regular securities, security tokens are not kept in centralized databases (which are controlled by transfer agents and clearinghouses) but are instead documented on shared ledgers that both permit the transfer and provide ownership ‍‌‍‍‌management.

What does a security token actually entail?

Digitizing real-world investments

These tokens have three major aspects that define them:

First of all, tokens of this type symbolize tokenized assets that come from the real world, for example, the shares of a company, debt, real estate or investment funds.
In general, security tokens strictly follow the requirements of the law concerning the issuing of securities (the most basic requirement).
Moreover, they are blockchain-based, which makes it possible for them to have such features as fractional ownership and dividend payments through smart contracts.

These tokens enable investors to get access to assets that were inaccessible to them before. Last fall I had a conversation with a developer - Miguel at a crypto meetup in Miami about this very situation. He showed me the 0.0014% ownership that he has of a commercial building in Singapore. Meanwhile, real estate syndicates may have viewed his $2,200 investment as a ‍‌‍‍‌joke.

The advantages for issuers are even greater. For instance, in the case of a regular securities offering, apart from the money that is actually raised, there is a need to allocate 4-7% of the total sum for the issuing and other fees. However, security token offerings (STOs) through blockchain automation and fewer intermediaries can cut the fees to half. Apart from the money saved, when Gates Inc. decided to tokenize $75M in their real estate portfolio, they also had the advantage of a fresh investor base from the regions where their traditional fundraising couldn’t reach.

Furthermore, they can be traded at any moment, thereby completely removing the time factor in the case of traditional stock markets.

Security‍‌‍‍‌ Tokens vs. Utility Tokens: The Reasons For The Confusion

People‍‌‍‍‌ confuse these two types in several ways. The primary reason is that some projects intentionally blur the distinction between the two in order to get more investors and at the same time not attract regulatory bodies. Another reason is that both have the same underlying tech, which leads to the assumption that they are the same even though they are ‍not.

Most utility token buyers do not use these tokens for their function but simply buy them to sell at a higher price. The existence of governance tokens giving voting rights and, therefore, possibly affecting the value of the protocol, has made the identification even more complicated.

Just a brief ‍‌‍‍‌‍‌‍‍‌comparison:

What Matters	Security Tokens	Utility Tokens
Purpose	Ownership in an asset	Access to services/features
Regulations	Subject to securities laws	Less regulated (unless deemed a security)
Why buy it?	As an investment	For functional utility
Income potential	The securities may generate dividends or profit sharing	Value associated with the ecosystem demand
Transfer rules	Might be limited	Generally can be transferred without any restrictions
ID verification	Almost always required	Varies by platform
Examples	Tokenized real estate, shares, bonds	ETH, BNB, app access tokens

The Legal Landscape (Yeah, It's Complicated)

The compliance headache isn't just about following rules but also about building systems that handle cross-border conflicts.

U.S.‍‍‌‍‍‌‍‌‍‍‌‍‌‍‍‌ Regulations and the Howey Test

In general, according to SEC, security tokens that essentially act as regular securities fall under the requirements of the existing legal framework for traditional securities. Primarily these are the Securities Act of 1933 and the Securities Exchange Act of 1934. A newly issued security token is required to either file a registration statement with the SEC (in that case, the procedure will be both expensive and take a long time) or the SEC may permit the token to be exempted under these Acts.

Most of the time the security token issuer's declaration is considered to be under the Reg D exemption. This provision restricts the offer to accredited investors only, i.e. individuals with a net worth exceeding $1M or having an annual income of more than $200K. At the same time, Reg A+ provides for the option to raise the limit up to $75M and both accredited and non-accredited investors may participate. Nevertheless, a lot more documents would need to be prepared.

Moreover, any offers that are made outside the US are regulated by Reg S, while Reg CF permits soliciting funds via crowdfunding. Thus, the maximum amount that can be collected from the public within a year is $5 million.

The legal landscape

How regulators define a security

The Howey Test, which got its name from the Supreme Court decision of 1946, is still the main point that federal regulatory authorities in the U.S. refer to when they decide whether a particular object is a security or not. If the case has the following four points, the offering is regarded as a security:

An investment of money
In‍‌‍‍‌ a shared venture
With a profit expectation
Which are mainly from the works of others

Consider, for instance, the Securities and Exchange Commission (SEC) investigation about DAO token offering in 2017. In one venture (common enterprise), investors could buy DAO tokens (money was invested) via ETH with the expectation of getting the returns (profit expectation) based on the work (others' efforts) of the project managers. As a result, the SEC decided it was an unregistered securities offering.

On the other hand, the purchase of ETH would rarely be considered a security under the Howey Test if the buyers' intention is mainly to use it for gas fees payment and not as an investment. So, that is why most regulators do not treat ETH as a security.

International‍‌‍‍‌‍‌‍‍‌‍‌‌‍‍‌‍‍‌ Methods and KYC Protocols

The United Kingdom and the European Union cannot be compared to the United States in terms of their approaches.

Kindly note that the public usually views the UK Financial Conduct Authority (FCA) as more transparent and easier to understand and thus conclude that it is less strict than the US SEC, if one may say it like that. They distinguish one token from another by placing them under different categories such as exchange tokens (e.g. Bitcoin), utility tokens, and security tokens. Security tokens are governed by the regulation of the Financial Services and Markets ‍‌‍‍‌Act.

EU came up with its regulation called Markets in Crypto-Assets (MiCA) to govern crypto. In reality, however, security tokens are still controlled by the old securities laws e.g. the Prospectus Regulation and MiFID II. The EU "passporting" system, which enables a security token offering that has been granted a license in one member state to be sold in any other EU countries, is a very significant benefit.

However, Know Your Customer (KYC) and Anti-Money Laundering (AML) measures should always be in place for security token holders throughout the world. The requirements not only involve recognizing the individual with a valid ID but also, verifying the address, giving the source of funds if it is a big investment, and transaction monitoring.

Nonetheless, the compliance automation tools offer support in this task. Such platforms as Securitize and Polymath which have created a mechanism for integrating compliance right into tokens, thereby enabling the automatic transfer restrictions enforcement, have been quite successful in this manner. The most incredible thing about the ERC-1400 standard is that it provides for the implementation of forced transfers - a feature that resolves a major compliance ‍‌‍‍‌problem.

Security‍‌‍‍‌ Token Offerings (STOs): The Honest Truth

A Security Token Offering is a regulated method of raising capital, in which the issuer sells tokenized, blockchain-registered securities. An STO combines features of both IPOs and ICOS:

In fact, IPOs and STOs are very similar in terms of their main purpose. So the question that arises is what the real difference between them is? Why would someone decide to take the STO route instead of just following the traditional IPO path?

In short, an ordinary IPO is somewhat analogous to one of those very elitist clubs that only admit people who are ready to pay quite a lot. Those agents and intermediaries who are solely there to take their portion of the pie are colluding all the way. What is even worse is that these gatekeepers who almost randomly determine the fate of your business offering not only have that power but can also do it without informing you. This, in essence, is the main reason why IPOs are mostly out of the reach of small and medium enterprises. Actually, they are pretty much nothing else but exit vehicles for businesses that have already reached the peak of their growth scalability race.

What primarily makes STOs so good is their functionality - they basically remove the middlemen, lower the costs greatly, and reduce the minimum amount of money making the fundraising market accessible to SMEs and startups. However, they have less liquidity and market recognition as their disadvantages.

ICOs have been compared to a wild west scenario in fundraising, in which for the most part, projects simply create a new cryptocurrency or token and then sell it to raise funds for their development. Generally, tokens are sold at a lower price during the ICO stage, and investors take a risk assuming that tokens' prices will increase significantly when the project is launched. Most of the time, ICOs operate in regulatory gray areas at best and are intended for crypto enthusiasts who may be more concentrated on the next big thing rather than doing thorough research.

On the other hand, STOs are more regulation-friendly and even welcome regulations, which implies that they abide by securities laws and provide investor protection. Hence, it may be more appealing to institutions, though more compliance efforts are ‍‌‍‍‌necessary.

Types of Security Tokens (And What They're Good For)

Different types of security tokens, first of all, possess different features, and there are million potential examples of their usage.

Types of security tokens (and what they're good for)

How different security tokens work

Equity Tokens

The truth is that tokenized shares are no different from the company's shares, and the additional features come from the blockchain. In fact, the holders of tokens should be given the voting rights, dividend rights, and theoretically, profit rights.

Apart from that, the blockchain-based shares are outperforming the traditional ones in a lot of ways. It is because smart contracts can manage dividend payments, shareholder voting, and on-chain cap table management, thus enabling very low administrative costs.

The legal instrument that marks the end of the dark area of equity tokenization in the sector is the Blockchain Act of Switzerland which was enacted in 2021. At present, companies like Mt Pelerin in Switzerland are opting for legally compliant blockchain-based shares. Not only are they registered on the blockchain, but they are also very similar to the regular shares in terms of functionality.

Debt Tokens

Simply put, debt tokens represent a tokenized debt instrument a tokenized representation of a bond or a loan. Besides, these tokens entitle the owner to receive the interest payments for a specified period in addition to the principal amount at the maturity date.

The window of opportunities here is almost limitless. Usually, the costs related to issuing and administering traditional bonds amount to 1-3% of the total costs. By converting to tokenized debt, these costs may be reduced to a level between 0.2-0.7% (with automated interest payments and compliance reporting) while the rest of the costs will stay unchanged.

The very first example that comes to mind in this connection is the case of Societe General's €100M covered bond on the Ethereum platform. The bond was the same in risk and returns as the traditional one, but the settlement was faster, and less work was required.

Asset-Backed ‍‌‍‍‌Tokens

It's the area where I have seen the most evolution over the time. Asset-backed tokens represent fractional ownership rights in tangible, physical assets - everything from real estate and precious metals to fine art and even exotic cars. Basically, if it exists in the real world and has value, someone's probably trying to tokenize it.

Real estate remains the most popular category, and for good reason. Automated rent distribution, transparent occupancy reporting, and effortless transfer of rights are some of the excellent investor experiences which tokens enable. RealT was the pioneer in breaking down a property into tokens and adding a feature of rental income distribution directly to the token holders on a monthly basis. The platform has tokenized 535 houses for $101 million so far according to RealT's reporting.

But the possibilities extend far beyond buildings. Commodity-backed tokens are gaining serious traction, especially in precious metals. Platforms like Paxos Gold (PAXG) let you own actual gold bars stored in London vaults, with each token representing one troy ounce. The difference from traditional gold ETFs? You can actually redeem your tokens for physical gold if you want it delivered.

Art tokenization is where things get really interesting. Masterworks has been fractionalizating paintings worth millions, but now we're seeing blockchain-native platforms doing the same thing. A $2M Picasso could get divided into 10,000 tokens at $200 each, and suddenly art investment isn't just for billionaires anymore.

Investing in Security Tokens

Your platform decision will not only determine the manner in which you will interact with the user interface but also your compliance requirements and your trading capabilities.

Platforms and Process

The security token community is very vibrant and there are a number of leading platforms that are always ‍‌‍‍‌‍‌‍changing:

Platform	What It's Good For	Where It's Based	Main Focus
Securitize	Full-stack issuance with a SEC-registered transfer agent maintained	USA	Compliance and lifecycle management
Polymath	ST-20 token standard with integrated compliance features	Global	Token creation and management
tZERO	Exchange for secondary trading with ATS-licensed	USA	Liquidity and market making
Tokeny	Compliant tokenization platform	Luxembourg	European market focus
INX	Digital asset trading platform with SEC registration	USA	A regulated trading environment

I have tried three out of the five platforms, not all. Securitize has a seamless interface, but its verification process is my least favorite. The operating model of the tZERO is very much like that of a regular brokerage, so it would be very easy for traditional investors to understand and feel comfortable, while crypto-native ones may get confused and find it difficult to navigate. If you are tech-savvy, then Polymath is the right choice for you as it is the most flexible one but requires a lot of technical knowledge.

The investment process typically starts with picking a platform, and this is followed by account creation, identity verification, accreditation checking (if applicable), reviewing the offering documents, account funding, and, finally, making a purchase. Registering and getting verified will take about 2-3 hours of your time and you will also need some additional time for due diligence. The good side of it is that if you already have an account, you can place another order in a matter of ‍‌‍‍‌minutes.

Risks‍‌‍‍‌ and Considerations

Even if they are under the supervision of authorities, security tokens have to deal with the same risks as any other tokens.

The risk of regulatory uncertainty is the primary risk to which security tokens are exposed. Despite the fact that some measures have been taken in the right direction, regulations are still changing constantly. The changes can limit the transferability of tokens, have a positive or negative impact on the valuation, or even make the token illegal.

Furthermore, they are struggling with liquidity problems. Theoretically, they should be able to trade at any time, but since there are only a handful of registered trading venues and a small number of investors, liquidity remains an issue.

Remember platform counterparty risk when considering your list of risks. The most significant factor that could affect your tokens might be the platform's issuance, which needs to be constantly available. If the platform is out of service, the transferability and management of tokens can be changed.

The disadvantage can be partially offset by buying tokens in various platforms as well as different asset classes. The investments in security tokens should be considered as a medium or long-term portfolio, rather than an actively traded position.

Where This Is All Headed

The security token area is the clearest example of a conceptual shift that the audience can literally see. The current capitalization in real money terms is just a few percentages of the conventional securities market which is estimated to be more than $100 trillion. Nevertheless, if the trends continue, the market can expand indefinitely.

An article by Boston Consulting Group predicts that, by 2030, tokenized assets may account for one-tenth of the global GDP thus creating a market potential of $16 trillion. I still think that such forecasts are very optimistic and that even 25% will still be a great opening.

Where this is all headed

The $16 trillion city of the future

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Frequently asked questions

01 What happens if a security token platform shuts down?

The consequences depend on the specific legal and technical structure. In properly designed systems, the token smart contracts should continue functioning independently, though transfer and compliance services might be disrupted. Best practices include ensuring tokens reference off-chain legal agreements that remain valid regardless of platform status.

02 Can security tokens pay dividends?

Absolutely. Security tokens can distribute dividends, interest payments, or returns directly to token holders' wallets. These can be programmed to execute automatically when conditions are met, like quarterly profits or rental income receipt.

03 What's the minimum investment for security tokens?

It varies widely. Some platforms allow investments as low as $100, while others maintain minimums of $10,000 or more. Regulatory exemptions sometimes impose different minimums for accredited versus non-accredited investors.

04 Are security tokens legal?

Yes, when issued in compliance with securities laws. The key is following proper registration requirements or qualifying for exemptions in each jurisdiction. Don't take this as a green light without legal counsel - the details matter and vary by location.