Security tokens are digital assets that represent ownership or rights to an underlying real-world asset, such as equity, debt, real estate, commodities, or other financial instruments. Unlike utility tokens or cryptocurrencies, security tokens are subject to securities regulations and are designed to comply with relevant securities laws in the jurisdictions where they are issued and traded.

Here are some key characteristics and features of security tokens:

1. Regulation: Security tokens are subject to securities regulations and must comply with applicable laws, including securities registration, disclosure requirements, and investor protection measures. Issuers of security tokens are typically required to follow regulations such as the Securities Act of 1933 in the United States or similar regulations in other jurisdictions.
2. Asset Backing: Security tokens derive their value from the underlying assets they represent, such as shares of a company, ownership in real estate, debt instruments, or revenue-sharing agreements. Each security token is backed by a specific asset or a portfolio of assets.
3. Legal Rights: Holders of security tokens typically have legal rights and entitlements associated with the underlying asset, such as voting rights, dividend payments, profit-sharing, or ownership rights. These rights are often outlined in legal agreements or smart contracts governing the issuance and management of the security tokens.
4. Fractional Ownership: Security tokens enable fractional ownership of assets, allowing investors to purchase and trade smaller units or fractions of high-value assets. This fractionalization increases liquidity and accessibility to a broader range of investors.
5. Blockchain Technology: Security tokens are issued and traded on blockchain networks, leveraging distributed ledger technology for transparency, security, and efficiency. Blockchain technology enables the tokenization of traditional assets and facilitates the issuance, transfer, and management of security tokens in a digital format.
6. Compliance and KYC/AML: Issuers of security tokens are typically required to perform Know Your Customer (KYC) and Anti-Money Laundering (AML) checks on investors to ensure compliance with regulatory requirements. These checks help prevent fraud, money laundering, and illicit activities associated with securities transactions.

Security tokens offer several potential benefits compared to traditional securities, including increased liquidity, lower transaction costs, faster settlement times, and access to a global investor base. However, they also require careful consideration of regulatory compliance, legal frameworks, and investor protection measures to ensure their successful issuance and trading in the market.