Security Token

A security token is a token that represents a regulated investment: a share of equity, a debt instrument, or a right to someone else's profits. Because it is a security in the eyes of the law, it must follow the same rules as a traditional stock or bond - who can buy it, how it is sold, and where it can trade.

Whether a token is a security usually comes down to the Howey test: if people invest money in a common enterprise expecting profit from the efforts of others, it is an investment contract. Almost every real-world asset that pays a return - tokenized real estate, credit, or funds - is a security token, whatever it is called.

In the US that means a security token is typically issued under an exemption such as Regulation D or Regulation S, sold only to eligible investors, and locked for a holding period. The token contract enforces these limits directly: transfers are restricted to whitelisted wallets that have cleared KYC, so the token cannot move to someone who is not allowed to hold it.

This is the opposite of a utility token, which gives access to a product rather than a claim on profits and is not meant to be an investment.

The defining trait of a security token is restriction. A token that anyone can buy and sell freely is almost certainly not a compliant security token - and if it should have been one, the issuer has a problem, not a feature.

Source: U.S. SEC (sec.gov), as of 2026.