The year 2020–21 has been the year of blockchain. It saw the rise of NFTs, cryptocurrencies came into the mainstream like never before, decentralized finance became a thing, and security tokens became a phenomenon.
Security tokens have gathered enough hype around them, and it is believed that STOs will be the next growth market in blockchain technology.
Due to the similarities in their characteristics, STOs are constantly being compared to NFTs, and the comparison is justified. STOs and NFTs are both vehicles that provide proof of ownership of an asset presented in different ways.
NFTs use blockchain to prove the ownership of the asset, while in hindsight, STOs do the same; they don’t have all the sass attached but can easily replicate ownership over a real asset.
The concept behind STOs is relatively simple. Unlike ICOs where the token is considered a currency or a means of utility, STOs are securities and regulated assets by government authorities. Herein also lies the key difference between STOs and NFTs in that STOs are regulated assets, whereas, for NFTs, they are still unregulated despite providing similar ownership rights.
The determination of whether or not an NFT is a security is generally based on its characteristics and may differ on a case to case basis. For example, you might have a piece of art that you have collected to appreciate the artwork. This NFT would not be classified as a security. However, an NFT that provides ownership over a financial asset or even a house would definitely classify as a security and would technically be classified as a security token.
There have been multiple debates about NFTs over the last few months about the legality of some, but not all NFTs. This has been particularly around the fractionalization of NFTs as these change the purpose and the characteristics of the NFT completely. This has yet to be determined and many regulated bodies have been examining these newfound structures and attempting to form a framework around them.
There are no right and wrongs to which structure is better. Both STO and NFT structures are excellent in their own rights and are highly innovative solutions to represent ownership over an asset.
About IX Swap
IX Swap is a next-generation platform that leverages DeFi services backed by CeFi regulatory compliance to facilitate safe and convenient issuance, listing, and trading of security tokens and fractionalized NFTs.
By bridging the gap between traditional finance and innovative blockchain-based solutions, IX Swap is paving the way in democratizing access to traditional financial markets that have never been done before.