Equity Tokens: What are they and how do they work?
An equity token, also known as a stock token and sometimes mistakenly called an equity token, is a type of security token that represents a share in an asset, granting rights related to its ownership.
They arise thanks to blockchain technology, revolutionizing the way capital is raised and the way investments are made.
Equity Token vs Security Token
Although there are users who try to differentiate them, the reality is that an equity token is a type of security token.
Like most security tokens, equity tokens are backed by an underlying asset and their value depends on the performance of this asset. But the main difference is that in equity tokens, they grant ownership rights over it, which does not necessarily happen with other types of security tokens.
Some of these characteristics and rights, which equity tokens mimic from traditional stocks, can be voting rights, participation in discounts, and dividend distributions.
The cryptocurrency space is constantly evolving. In addition, there is no entity or organization that defines the terms that are usually used, but rather they are determined by the community. Therefore, it is normal to find differences in the definition of some terms when searching in different sources.
In the case of equity tokens, it is common for them to include all tokens that grant ownership rights over an asset, such as a company, a fund, or a property. However, some sources only refer to them when the asset is a company, imitating the traditional model of stocks.