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What is a Security Token in Crypto and How it Works?

Learn everything about security tokens and their functionality in the crypto space. Discover how security tokens operate and their impact on investment.
S. Vishwa
5 Minutes
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In the crypto space, security tokens have emerged as a revolutionary concept combining blockchain technology's benefits with traditional finance. These digital assets represent ownership rights or claims to valuable real-world assets, tokenized and stored securely on the blockchain. 

In this article, we will explore the fascinating realm of security tokens, understanding what they are, how they work, and their significance in the crypto landscape.

What is a Security Token?

A security token is a digital representation of ownership or rights to an asset that has been tokenized and stored on a blockchain. It is created through a process called tokenization, where an asset's ownership is transferred to a blockchain and assigned a unique alphanumeric sequence generated by a hashing algorithm. 

This token becomes the digital representation of the underlying asset, such as stocks, bonds, or other securitized assets. Tokenization itself is not a new concept. In traditional finance, companies used to issue paper stock certificates to investors, representing ownership or other rights.

Security tokens are essentially the digital form of these traditional investments. They bring the advantages of blockchain technology, such as transparency, immutability, and efficiency, to the world of securities.

Understanding Tokenization

To grasp the concept of security tokens, it is essential to understand tokenization. Tokenization involves converting an asset's ownership, whether a company or a physical asset like a car, into a digital token on the blockchain. 

This token represents ownership and can be bought, sold, and transferred just like any other digital asset.

For example, let's consider the tokenization of a car. The vehicle's identification number (VIN) and the owner's information can be tokenized and stored on a blockchain. This tokenized representation of ownership can then be traded, allowing for the car's ownership transfer. 

Similarly, security tokens represent ownership or rights to assets, but instead of physical assets, they are typically associated with assets like stocks, bonds, or other securitized assets.

How do Security Tokens Differ from Cryptocurrencies?

While security tokens and cryptocurrencies share similarities as digital assets stored on a blockchain, they serve different purposes. Cryptocurrencies, such as Bitcoin and Ethereum, are designed to be used as decentralized currencies or payment methods. 

They are not explicitly tied to ownership or rights of underlying assets. On the other hand, security tokens are specifically created to represent ownership or rights to assets. 

They are intended to function similarly to traditional investment instruments like stocks and bonds. Security tokens must comply with regulatory requirements and are subject to securities laws, unlike cryptocurrencies.

Benefits of Security Tokens

Security tokens offer several advantages over traditional securities, bringing innovation and efficiency to the investment landscape:

1. Efficiency

Tokenization eliminates the need for intermediaries, streamlining the fundraising and trading processes. This leads to more efficient transactions, reduced settlement times, and lower costs. Dividend issuance, voting capabilities, and liquidation preferences can also be automated, saving time and resources.

2. Automation

By utilizing smart contracts and programmable rules, security tokens enable better compliance with regulations. Compliance rules can be programmed into the token's configuration, ensuring regulatory requirements are met automatically. Payments like dividends can also be automated, improving efficiency and transparency.

3. Transparency

Blockchain technology provides a transparent and immutable record of ownership and transactions. This transparency reduces disputes, enhances investor protection, and mitigates fraudulent activities like document tampering. Investors can trust the accuracy and integrity of the information recorded on the blockchain.

4. Improved Liquidity

One of the most significant advantages of security tokens is their potential to enhance liquidity in traditionally illiquid markets. Tokenizing assets allows for fractional ownership and enables global investor participation. Previously inaccessible or illiquid assets become more accessible, leading to increased liquidity and potential market growth.

5. Market Access

Security tokens open up new investment opportunities and allow investors to diversify their portfolios. With security tokens, investors can access previously unavailable assets or those with limited market access. The blockchain operates 24/7, enabling investors to trade at their convenience without being restricted by weekends, holidays, or bank closures.

6. Innovation

Security tokens unlock possibilities for innovative financial instruments. Programmable contracts and shared ledgers enable the creation of fractionalized real estate, dynamic exchange-traded funds (ETFs), revenue-sharing agreements, and more. The potential for innovation in the digital asset space is vast and continually evolving.

Security Tokens and Regulations

Security tokens are subject to regulations imposed by financial authorities to protect investors and maintain market integrity. 

The Securities and Exchange Commission (SEC) plays a crucial role in overseeing security tokens in the United States. The SEC applies the "Howey Test" to determine whether a token qualifies as a security.

Under the Howey Test, a token is considered a security if it meets certain criteria: there must be an investment of money, a common enterprise, and an expectation of profits from the efforts of others. Compliance with securities regulations is essential to ensure investor protection and maintain market stability.

Investing in Security Tokens

Security tokens are not readily available for retail investors on public stock or cryptocurrency exchanges. However, many institutions are working to gain regulatory approval for security tokens to make them accessible to a broader range of investors. Until then, investing in security tokens may be limited to accredited investors or institutional players.

It is important to note that investing in security tokens carries risks, just like any other investment. Investors should conduct thorough research, assess the credibility of the issuing company, and seek professional advice before making any investment decisions.

Conclusion

Security tokens represent a groundbreaking fusion of blockchain technology and traditional finance. These digital assets offer numerous benefits, including efficiency, automation, transparency, improved liquidity, market access, and opportunities for innovation. 

While security tokens and cryptocurrencies share similarities as blockchain-based assets, security tokens are specifically designed to represent ownership or rights to underlying assets.

As regulations evolve and security token infrastructure matures, these digital assets have the potential to revolutionize the investment landscape, providing new opportunities for investors and unlocking previously untapped markets. 

However, it is crucial for investors to understand the risks associated with security token investments and approach them with caution.

The future of security tokens holds great promise, and as the regulatory environment becomes more favorable, we can expect to see increased adoption and integration of security tokens in the global financial system. 

As with any emerging technology, it is an exciting time to witness the transformation and potential of security tokens in shaping the future of finance.

Disclaimer

The information provided on this website does not constitute investment advice, financial advice, trading advice, or any other advice, and you should not treat any of the website's content as such.

Token Metrics does not recommend buying, selling, or holding any cryptocurrency. Conduct your due diligence and consult your financial advisor before making investment decisions.

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Recent Posts

Research

The Case for Rules-Based Crypto Indexing After a Volatile Cycle (2025)

Token Metrics Team
5

After a whipsaw year, many investors are asking how to stay exposed to crypto’s upside without riding every drawdown. Rules-based crypto indexing is a simple, disciplined answer: follow a transparent set of rules rather than gut feelings. The Token Metrics Global 100 puts this into practice—own the top-100 in bullish regimes, rotate to stablecoins in bearish regimes, and rebalance weekly. On top of that, you can see what you own in real time with a Holdings Treemap, Table, and Transactions Log. Less second-guessing, more process.→ Join the waitlist to be first to trade TM Global 100.

Why Rules-Based Crypto Indexing Matters in October 2025

In a volatile cycle, emotion creeps in: chasing winners late, cutting losers early, or missing re-entry after fear. Rules-based crypto indexing applies consistent criteria—constituent selection, weighting, and rebalancing—so you don’t have to improvise in stress.

For readers comparing crypto index options, think of it as a codified playbook. A rules-based crypto index is a methodology-driven basket that follows predefined signals (e.g., market regime) and maintenance schedules (e.g., weekly rebalancing), aiming for repeatable behavior across cycles.

Rules-based crypto indexing is a systematic approach that tracks a defined universe (e.g., top-100 by market cap) and maintains it on a fixed cadence, with explicit rules for when to hold tokens and when to de-risk into stablecoins.

How the TM Global 100 Index Works (Plain English)

  • Regime switching: When the market signal is bullish, the index holds the top 100 assets by market cap; when bearish, it moves to stablecoins until conditions improve.
  • Weekly rebalancing: Constituents and weights update weekly to reflect the latest market-cap rankings—capturing leadership changes without manual effort.
  • Transparency: A Strategy modal and Gauge → Treemap → Transactions Log show the signal, current mix, and every change recorded.

What you’ll see on launch: Price tile, “tokens: 100,” “rebalances weekly,” and a fast ~90-second Buy flow with fee/slippage previews.

See the strategy and rules. (TM Global 100 strategy)

Benefits at a Glance (Why This Beats DIY)

  • Time & operational drag: Skip juggling 20–100 tickers, wallets, and venues.
  • Execution quality: A single indexed flow can help reduce piecemeal slippage and duplicated fees.
  • No missed rotations: Weekly rebalancing and regime switching reduce the cost of being late to trends—or late to de-risk.
  • Always-on visibility: Holdings treemap + table + transactions log remove the black box.
  • Behavioral edge: Clear rules can limit panic sells and FOMO buys during turbulence.
  • Portfolio role: A disciplined core that you can complement with selective satellites.

Step-by-Step: How to Get Early Access (Waitlist)

  1. Open the Token Metrics Indices hub and select TM Global 100.
  2. Click Join Waitlist and enter your email for launch-day access.
  3. (Optional) Connect your wallet so you’re ready to fund.
  4. On launch, review the Gauge → Treemap → Transactions to confirm the current mix.
  5. Tap Buy Index, review fees/slippage, and confirm (about 90 seconds end-to-end).
  6. Track your position and every weekly rebalance in My Indices and the Transactions Log.

→ Join the waitlist to be first to trade TM Global 100.

Decision Guide: Is This Right for You?

  • Hands-Off Allocator: Want broad market beta with an explicit de-risking rule. Consider if you resist micromanaging.
  • Active Trader: Prefer a disciplined core that moves to stablecoins in bears while you express edge with satellites.
  • Long-Term Believer: Seek systematic participation in leadership changes via weekly rebalancing.
  • Transparency-First User: Require auditable holdings and a transactions log—no black boxes.
  • Tax/Compliance Conscious: Prefer consolidated rebalances over many ad hoc trades.
  • TM Research Follower: Want to pair TM insights with a rules-based execution layer.
  • New to Crypto Baskets: Want to avoid building and maintaining a DIY index.

FAQs

What is a rules-based crypto index?

A methodology-driven basket that follows predefined rules for asset selection, weighting, and maintenance. In TM Global 100, that means top-100 exposure in bullish regimes and stablecoins in bearish regimes, with weekly rebalancing and full transparency.

How often does the index rebalance?

Weekly. This cadence refreshes constituents and weights to align with current market-cap rankings; separate regime switches can move between tokens and stablecoins.

What triggers the move to stablecoins?

A documented market signal. When it turns bearish, the index exits to stablecoins; when bullish resumes, it re-enters the top-100 basket.

Can I fund with USDC or fiat?

Funding options will surface based on your connected wallet and supported rails. USDC settlement on sells is supported; fiat on-ramps may be added over time.

Is the wallet custodial?

No. The embedded wallet is self-custodial—you control your keys and assets.

How are fees shown?

Before confirming a trade, you’ll see estimated gas, platform fee, max slippage, and min expected value—so you can proceed with clarity.

How do I join the waitlist?

Go to the Indices hub, open TM Global 100, and enter your email. You’ll receive a launch-day link to buy.

Security, Risk & Transparency

  • Self-custody by default: You control your wallet.
  • Defense-in-depth: 2FA/account security features and explicit transaction prompts.
  • Clear economics: Fee and slippage previews before you confirm.
  • Auditability: Holdings treemap + table + transactions log document every change.
  • Methodology limits: Regime logic may not capture every market nuance; weekly cadence can differ from intraday moves.
  • Regional availability: On-ramps and features can vary by jurisdiction.

Crypto is volatile and can lose value. Past performance is not indicative of future results. This article is for research/education, not financial advice.

After a volatile cycle, the edge is process. Token Metrics Global 100 combines rules-based crypto indexing, weekly rebalancing, and full transparency so you can participate in upside and step aside during bears—without running your own spreadsheets. If that’s the core you’ve been missing, join the waitlist now.

Research

Crypto Indices - See What You Own: Holdings Treemap, Table, and Transactions Log (2025)

Token Metrics Team
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If you’ve ever bought a “basket” of coins and then wondered what you actually hold, you’re not alone. The Token Metrics Global 100 solves that by pairing a rules-based strategy with radical visibility: an interactive holdings treemap, sortable table, and a real-time transactions log—so you can see what you own at all times. This transparency sits on top of a simple idea: a top-100 crypto index when markets are bullish and stablecoins when they’re not, with weekly rebalancing and one-click buy at launch. The result is clarity for hands-off allocators and discipline for active traders—without spreadsheets or manual rebalances.

→ Join the waitlist to be first to trade TM Global 100.

Why Transparency Matters in October 2025

Today’s crypto investor expects more than a chart and a headline weight. You want to audit your index: which coins, what size, and what changed after each rebalance. That’s exactly why we ship three visibility layers on day one: Gauge → Treemap → Transactions Log—plus a classic holdings table for power users.

In practical terms, a holdings treemap shows proportional weights at a glance, a table lets you sort and export details, and a transactions log chronicles every add/trim/exit during rebalances and regime switches. Together, they answer the search intent behind “crypto index holdings” and “weekly rebalancing” with an immediately scannable source of truth.

How the TM Global 100 Index Works (Plain English)

  • Regime switching: When our market signal is bullish, the index holds the top 100 assets by market cap. When bearish, it exits to stablecoins and waits for a re-entry signal.
  • Weekly rebalancing: We adjust constituents and weights weekly to reflect updated rankings—so the index stays aligned with the market.
  • Transparency: You’ll see a Strategy modal (rules at a glance), a market signal gauge, an interactive Holdings treemap & table, and a Transactions log that records rebalances and regime shifts.

What you’ll see on launch: A price tile, “tokens: 100,” “rebalances weekly,” and a Buy Index flow that can complete in about 90 seconds, end-to-end.

See the strategy and rules. (TM Global 100 strategy)

Benefits at a Glance (Why This Beats DIY)

  • Time saved: Skip ranking lists, manual screeners, and cross-exchange rebalances.
  • Lower execution drag: A single indexed flow helps reduce the slippage and fees you’d pay hopping between many tokens.
  • No missed cycles: Weekly rebalances help capture changes in the top-100 while the regime switch avoids guesswork when markets turn.
  • Full visibility: Treemap + table + transactions let you see exactly what changed and why—no black boxes.
  • Rules over vibes: A consistent methodology can reduce emotional decisions during drawdowns and market euphoria.

Step-by-Step: How to Get Early Access (Waitlist)

  1. Open the Indices hub and select TM Global 100. (Token Metrics Indices hub)
  2. Join the waitlist with your email to get launch-day access and updates.
  3. (Optional) Connect your wallet so you’re ready to buy at launch.
  4. On launch: Open TM Global 100, review the Gauge → Treemap → Transactions, and tap Buy Index.
  5. Confirm the buy: You’ll see estimates for fees/slippage and the current token mix.
  6. Track your position: Your holdings and every rebalance appear in My Indices and the Transactions Log.

→ Join the waitlist to be first to trade TM Global 100.

Decision Guide: Is This Right for You?

  • Hands-Off Allocator: Want “own the market” exposure and automatic upkeep. Consider if you dislike micromanaging.
  • Active Trader: Want a disciplined core that moves to stablecoins in bears while you take satellite bets elsewhere.
  • TM Member/Prospect: Already trust Token Metrics research and want rules-based execution with full visibility.
  • Starter Portfolio Builder: Prefer a single decision over 20+ token buys and periodic DIY reweights.
  • Transparency Seeker: You won’t tolerate black-box products; you want a real transactions log and holdings you can audit.
  • Tax-Aware Rebalancer: You’d rather not run frequent piecemeal trades yourself.
  • Mobile-First User: Want a fast, on-page buy flow instead of tab-hopping across venues.
  • Analytics Fan: Enjoy comparing weights and changes in the treemap after each weekly rebalance.

FAQs

What is a crypto index with a holdings treemap?

It’s a rules-based basket of cryptocurrencies where you can visually inspect weights via an interactive treemap, alongside a sortable table and a transactions log that records every rebalance and regime switch.

It’s a rules-based basket of cryptocurrencies where you can visually inspect weights via an interactive treemap, alongside a sortable table and a transactions log that records every rebalance and regime switch.

Weekly. Rebalances update constituents/weights to reflect current top-100 rankings; separate regime switches can also move the portfolio between tokens and stablecoins when the market signal changes.

What triggers the move to stablecoins?

A proprietary market signal. When bearish, the index exits tokens to stablecoins; when bullish resumes, it re-enters the top-100 basket.

Can I fund with USDC or fiat?

At launch, funding/settlement options surface based on your connected wallet and supported chains. USDC payout is supported on selling; fiat on-ramps may be added later.

Is the wallet custodial?

No. The embedded wallet is self-custodial—you control your funds.

How are fees shown?

Before you confirm, the buy flow surfaces estimated gas, platform fee, max slippage, and min expected value.

How do I join the waitlist?

Open the Indices hub, navigate to TM Global 100, and add your email. You’ll be notified on launch with a direct link to buy.

Security, Risk & Transparency

  • Self-custody: Embedded smart wallet with user control.
  • Operational clarity: Weekly rebalances; regime logic documented in the Strategy modal.
  • Fee & slippage preview: All surfaced before you confirm a trade.
  • Data integrity: Holdings treemap + table and transactions log reflect each executed change.

Regional notes: Availability and on-ramps can vary by jurisdiction. Crypto is volatile and can lose value. Past performance is not indicative of future results. This article is for research/education, not financial advice.

Conclusion

Token Metrics Global 100 is built for investors who want broad market exposure and the receipts to prove what they hold—treemap, table, and transactions on every rebalance. If you value rules, discipline, and transparency, join the waitlist and be ready on launch day.

Click here to get early access to Token Metrics indices.

Research

Crypto Index vs DIY Basket: Time, Slippage, and Missed Rebalances (2025)

Token Metrics Team
5

Building your own crypto basket sounds simple—until you’re juggling 10–50 tickers, spreadsheets, rebalance rules, spreads across chains, and the constant fear of missing regime turns. A crypto index removes that manual grind: TM Global 100 holds the top 100 assets when the market is bullish and moves fully to stablecoins when it’s not, with weekly rebalancing and full transparency of holdings and transactions. One click to buy, zero maintenance to keep up.

→ Join the waitlist to be first to trade TM Global 100.

Why Indices Matters in October 2025

In 2025, time and execution quality are alpha. Manually maintaining a DIY basket multiplies complexity: fragmented liquidity, multiple wallets, chain fees, and coordination across exchanges—all while markets move. A rules-based index compresses that overhead into a single, auditable product with pre-declared logic and scheduled upkeep.

Definition (snippet-ready): A crypto index is a rules-based basket of digital assets that rebalances on a set schedule and/or when market conditions change, so you don’t have to micromanage individual coins.

Traders searching “DIY crypto basket,” “regime switching,” or “weekly rebalancing” usually want one thing: broad exposure without the constant maintenance and the regret of missed rebalances. That’s the exact problem Token Metrics Global 100 addresses with weekly updates and regime switching to stablecoins when signals turn bearish.

How the TM Global 100 Index Works (Plain English)

  • Regime switching: When signals are bullish, the index holds the top 100 by market cap; when bearish, it exits fully to stablecoins to wait for re-entry.
  • Weekly rebalancing: Aligns weights and constituents with updated rankings; regime changes can also trigger full portfolio shifts.
  • Transparency: Strategy modal explains selection & rebalancing rules; Holdings show a treemap/table; Index Transactions log all changes.

What you’ll see on launch: Price tile, signal gauge, tokens=100, “rebalances weekly,” contract address, and a Buy Index button with a ~90-second live demo flow showcased in launch content.

→ See the strategy and rules. (TM Global 100 strategy)

Benefits at a Glance (Why This Beats DIY)

  • Time saved: Replace multi-exchange shopping, wallet hops, and manual allocations with one click.
  • Fewer missed rebalances: Weekly cadence + visible transactions log reduce the cost of “I’ll do it tomorrow.”
  • Slippage discipline: Centralized execution with declared slippage/fee previews helps contain surprises vs piecemeal orders.
  • Regime switching: Codified “risk-off” behavior into stablecoins during bears, so you don’t have to white-knuckle exits. (No performance promises.)
  • Transparency: Strategy modal → Holdings treemap/table → Transactions log—see exactly what you hold and when it changed.

Proof cues (What you’ll see): Gauge (market signal) → Treemap (allocations) → Transactions Log → ~90-second Buy flow.

Step-by-Step: How to Get Early Access (Waitlist)

  1. Open the Token Metrics Indices hub and select TM Global 100.
  2. Add your email to the waitlist so you’re first in line at launch.
  3. (Optional) Connect your wallet—our embedded, self-custodial smart wallet supports major chains.
  4. On launch day, you’ll see the price tile, signal gauge, and “Buy Index.”
  5. Review the strategy, expected fees/slippage, and holdings; confirm to purchase.
  6. Track your position in My Indices; rebalances and any regime switches will appear in the transactions log.
→ Join the waitlist to be first to trade TM Global 100.

Decision Guide: Is This Right for You?

  • Hands-Off Allocator: Want broad exposure without micromanaging? Consider a rules-based core that updates weekly.
  • Active Trader: Keep your bets, but use an index core that may step to stablecoins during bears.
  • TM Member/Prospect: Prefer transparent holdings, logs, and a simple buy/sell flow.
  • Time-Strapped Professional: Reduce ops work (wallets, slippage math, spreadsheets) to nearly zero.
  • New to Crypto: Learn with training wheels—strategy modal, tooltips, and clear risk language.
  • DIY Purist: If you enjoy tinkering with weights daily, DIY could still fit—just know weekly index upkeep is handled for you.

FAQs

What is a crypto index?

A rules-based basket of assets with scheduled rebalancing and, in TM Global 100’s case, a regime switch between top-100 exposure and stablecoins.

How often does the index rebalance?

Weekly, with additional full-portfolio switches when the market regime changes.

What triggers the move to stablecoins?

A proprietary market signal. When bearish, the index exits tokens into stablecoins and waits for a bullish re-entry.

Can I fund with USDC or fiat?

Funding options surface based on your connected wallet and supported chains; USDC payouts are supported on selling. (Stablecoin entry may come later.)

Is the wallet custodial?

No. The embedded wallet is self-custodial; you control funds.

How are fees shown?

The Buy flow shows estimated gas, platform fee, max slippage, and minimum expected value before you confirm.

How do I join the waitlist?

Visit the Indices hub → TM Global 100 → enter your email to get notified and first access at launch.

Security, Risk & Transparency

  • Self-custody: You transact via an embedded, self-custodial smart wallet.
  • Visibility: Strategy modal, Holdings treemap/table, and Transactions log make changes auditable.
  • Fee & slippage preview: See estimated gas, platform fee, max slippage, and minimum expected value before confirming.
  • Regime logic limits: Signals can be wrong; markets can gap; weekly rebalances can’t eliminate risk.
  • Region/chain notes: Supported chains surface in-product; availability and options may vary.

Crypto is volatile and can lose value. Past performance is not indicative of future results. This article is for research/education, not financial advice.

Conclusion

If you’ve ever missed a rebalance or watched slippage eat into returns, Token Metrics Global 100 can help standardize the work: rules-based logic, weekly updates, and a visible log of everything that changed. Join the waitlist to be first to trade, and make a disciplined index your core.

→ Join the waitlist to be first to trade TM Global 100.
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