Security token

A security token is not a new asset class. It is the same security as always, whose ownership record moves from a central registry to a distributed ledger. Technically it is a token with transfer restrictions coded into the contract itself (a permissioned token), so only wallets verified through KYC/AML can receive it. The dominant mechanism is ERC-3643: every transfer triggers two on-chain checks, isVerified() (the recipient's on-chain identity holds the required claims) and canTransfer() (the transfer meets issuance rules such as holder limits or country restrictions). An Agent role enables minting, freezing and forced transfers to satisfy regulatory orders.

What matters for a business is the regulatory boundary. If the token is a financial instrument, it falls outside MiCA and under securities law. In the United States that means the Securities Act of 1933 and SEC oversight; in the EU, MiFID II and the DLT Pilot Regime. This lets issuers emit and transfer real securities (RWA) on-chain with automated compliance, near-instant settlement, fractional ownership and full traceability, cutting post-trade intermediaries.

On standards, ERC-3643 (also called T-REX) reached Final status in the Ethereum community in December 2023 and was proposed in July 2021 by the Tokeny Solutions team. ERC-1400, proposed by Polymath in 2018, remains in Draft status and groups several sub-standards (ERC-1594, ERC-1410, ERC-1643, ERC-1644). As a sector reference, Securitize, an issuer and transfer agent registered with the SEC, tokenizes BlackRock's BUIDL fund, a money market fund launched in March 2024 on Ethereum.