Security Tokenization

Definition ∞ Security tokenization is the process of issuing traditional financial securities as digital tokens on a blockchain, representing ownership rights or other financial interests. These tokens are subject to securities regulations and can represent equity, debt, or other investment contracts. They offer potential advantages such as increased liquidity for illiquid assets, fractional ownership, automated compliance through smart contracts, and streamlined capital raising. Security tokens aim to bridge the gap between traditional capital markets and blockchain technology, providing a compliant and efficient digital alternative.
Context ∞ Regulatory frameworks and technological standards for security tokenization are a central focus for financial institutions and blockchain platforms. Discussions involve harmonizing existing securities laws with the unique properties of digital tokens, ensuring investor protection, and preventing illicit activities. The future development of security tokenization is poised to transform private markets and potentially public exchanges by digitizing asset issuance and transfer, attracting significant institutional investment.