The security token is a physical device used to gain access to an electronically restricted resource. The token is used in addition to or in place of a password. It acts as an electronic key to access something. It could value, stake, voting right, or anything. A token is not limited to one particular role. it can fulfill a lot of roles in its native ecosystem.
Security tokens are designed to represent complete or fractional ownership interests in assets and/or entities. While utility tokens have no limitations on who can send or receive the token, security tokens are subject to many restrictions based on identity, jurisdiction, and asset category.
Security Token Standard
Security Tokens can become the default form for all financial securities. In the same way that the ERC-20 standard helped to create the boom in utility tokens, the security token standard will help drive the boom in security tokens. All participants in the ecosystem will be able to speak the same language and become confident building on this new and exciting technology. security token standard protocols
ERC20 Token Standard describes the functions and events that an Ethereum token contract has to implement. it used for smart contracts on the Ethereum blockchain for implementing tokens. ERC stands for Ethereum Request for Comment, and 20 is the number that was assigned to this request. The clear majority of tokens issued on the Ethereum blockchain are ERC-20 compliant.
ERC1404 Token Standard is designed specifically for tokenized securities and has been developed with guidance and insight from securities law firms, major cryptocurrency exchanges, and issuers.
ERC223 Token Standard the errors in ERC20 have been eliminated in ERC223. For instance, the problem of lost tokens which happens during the transfer of ERC20 tokens to a contract when people mistakenly use the instructions for sending tokens to a wallet.
ERC721Token Standard tokens can be used in any exchange, but their value is a result of the uniqueness and rareness associated with each token. The standard defines the functions name, symbol, total supply, balance, owner, approve, take ownership, transfer, tokenOfOwnerByIndex, and tokenMetadata.
ERC777 Token Standard An improved proposal to prevent the loss of tokens due to the ERC 20 bug. It includes New functions send instead of transfer, authorized operator instead of approving, and tokens received instead of tokenFallback.
Finally, we will explain instructions that used with the security token
- Must have a standard interface to question whether a transfer would be successful and provide a reason for failure.
- Must be able to execute forced transfers during legal actions or fund recovery processes.
- Must have a release standard event for issuance and redemption.
- Must permit the attachment of metadata to a subset of a user’s balance like special shareholder rights or data related to transfer restrictions.
- Must allow the possibility to change metadata at the time of transfer according to off-chain & on-chain data and based on the transfer parameters.
- May require users to sign data before passing it into a transaction so as to validate in on-chain.
- Should not restrict the variety of asset classes across jurisdictions that may be represented.
- Should be compatible with ERC-777 and ERC-20 standards.