How Security Tokens Can Be Created In Blockchain?

How Security Tokens Can Be Created In Blockchain?

In recent days, the concept of Security Token Offerings sounds louder than Initial Coin Offerings. This is because of the advantages of security tokens over the utility tokens. All the investors are aware of the importance of security tokens and also the risks involved in ICO process.

This made Initial Coin Offerings move aside and providing a way to security token offerings to move forward on the crypto world. In this blog let me tell you something about security token and security token blockchain's architecture.

What are Security Tokens ?

Security Token, is one which says YES to Howey's test. In short, the tokens which allow investors to claim for profit/share after the launch of ICO are known as security tokens. Hence, the process is termed as a new form of ICO, called Security Token Offerings (STO).

If you want to know about Howey's test and as well as about security token in details, just refer at Crypto Tokens and its Classifications [Security Token Blockchain :

As security tokens function different from utility tokens, they require a different or a new blockchain. Blockchain of security token will be in different infrastructure from utility token blockchain. The building blocks that make security token blockchain are listed in detail below :

Building Blocks Of Seurity Tokens Blockchain

The blockchain building blocks can be imagined into two tires for easy understanding.

Blockchain Building Blocks For Security Tokens

Tier 1 Infrastructure

  • Components
  • Protocols

Tier 2 Infrastructure

  • Protocols

Tier 1 - Blockchain Runtime

The tier 1 blocks involve Components that abstracts main participants in security token offering process and Protocols that abstracts the interactions between those participants.

  1. Components

Assets :

An asset represents the legal ownership claim, represented by a set of documents of ownership of the specific physical or virtual entity.

Owners :

The owner is individuals who have ownership of specific entities or assets.

Validator Nodes :

The ownership of assets should be established by legally reputable financial institutions.These institutions should participate in the blockchain network as validator nodes.

Experts Delegate Nodes :

Expert Delegate nodes that represent different players in the architecture of financial systems,  abstract functionalities such as legal assessments, broker-dealers, clearing-custody and other key participants in crypto-security transactions.

2. Protocols 

Tokenization :

The basic protocols responsible for the creation of an on-chain representation of real assets.

Identity :

The participants and the assets should be identified both legally and technically.

Ownership-Consensus:

Protocols that maintain the validity of a transaction on financial correctness and on the immutable transfer of ownership.

Privacy :

The ability to establish privacy protections on different information sets related to assets and owners comes under privacy.

Oracles :

Oracle is responsible for access of off-chain data that is relevant to crypto-securities.

Tier - 2 Crypto securities Protocols :

Tier 2 block of a security token blockchain should involve protocols that are relevant to security token transactions.

Crypto - security Primitives :

This involves the protocols that are used for the implementation of debt, equity, and derivative tokens.

Compliance :

There are many compliance rules related to security token transactions. A security token blockchain should include a simple way to implement those compliance rules in a way that can be used in security token transfers.

Disclosures :

Owners and the one in validator nodes should have the ability to disclose material information that can be relevant to the price and validation of a security token. The mechanics of such disclosures should be abstracted in a security token blockchain.

As there are many different interesting blocks in security token blockchain since the above listed are the most important blocks in the implementation of security token blockchain.