Security tokens are said to be very special crypto tokens. In order to understand what the nature of security token is, first let's understand what is meant by a token.
Credits: Binance Academy
Token and Cryptocurrency
Both, cryptocurrency and token circulate in the crypto market.
Now you might be thinking, what is the difference between a token and Cryptocurrency.
The term "token" refers to the amount that is transferred from the sender to the receiver.
Let's say someone sends 10 Hive or 0.99 Hive, then they are sending 10 Hive tokens or 0.99 Hive tokens.
There is an important difference between real cryptocurrencies and those that are just tokens: the blockchain.
Those which are only native to individual blockchain are called cryptocurrency.
Like Bitcoin is the crypto native to Bitcoin blockchain while Ether is the crypto native to Ethereum blockchain.
Like on Hive blockchain, we have the native crypto Hive and other tokens are being created on Hive blockchain like Leo, POB etc.
Security Tokens
These are the non native crypto tokens that represent a security.
If shares of a publicly traded company were tokenized, the shares are securities and the resulting tokens would be deemed as security tokens.
This means that, security tokens have to abide by the rules as the security they represent while the payment token like Bitcoin or utility tokens are free from this burden. The later still have to abide by the laws but not with the laws on securities.
That being said, it's not necessary to obtain approval from SEC of a prospectus to sell Bitcoin in America but it's obligatory to do so if you want to sell security tokens in accordance with the law.
Until a few years ago, Coinbase was believed to be working on a platform for security tokens but it hasn't yet made the hard decision of adding the trade of security tokens.
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