The Security Token Market Needs Better Lingo

In April of that year, Blockchain Capital raised $10m for its third fund, a "Tokenized VC fund." Unlike most ICOs that purposely avoided regulatory compliance, this was a compliant U.S. security, issued as a token.

"Security token offering," or STO, was coined to distinguish a regulatorily compliant token offering from earlier ICOs which mostly ignored compliance.

These are traditional securities issued in digital token form.

These assets are securities, issued in token form, that may be redeemed or accepted by the issuer or the issuer's designee in direct exchange for products or services.

Leaving aside the types of tokenized securities expected, the market should understand other significant ways that tokenized securities vary from ICOs.

Tokenizing a security will not make it into a bearer instrument.

Issuers of securities are obligated to track ownership of, and in certain cases, replace lost or destroyed shares of securities; this obligation will continue for securities in token form.

The issuer of securities stands to potentially lose its exemption from registration and to be forced to become a public reporting company if its securities are traded in violation of these restrictions.

Generally, consultants who previously designed "Token economies" or the "Tokenomics" of ICOs will be replaced by Registered Representatives of broker-dealers who will perform "Structuring" or the design of the security, and placement of those securities in compliance with relevant law.

Issuers of tokenized securities may rely upon technical service providers and may obtain assistance for internal technical design but generally should structure, market, and place their securities through Registered Representatives of broker-dealers to avoid violating US law.