Terms & Definitions
Definitions of common terms used in digital assets, securities and tokenization.
Accredited investor
An investor who meets eligibility criteria under the relevant jurisdiction’s rules. In the United States, individuals may qualify through income, net worth or specified professional credentials, among other routes.
Alternative trading system (ATS)
A venue that brings together buyers and sellers of securities outside a traditional exchange. In the United States, qualifying systems operate under requirements including Regulation ATS.
Anti-money laundering (AML)
Rules and controls intended to prevent proceeds of crime from being presented as legitimate funds. Obligations depend on the jurisdiction and type of business.
Blockchain
A digital ledger that records data in sequentially linked blocks. Networks use it to maintain transaction records shared among participants.
Broker-dealer
A business that trades securities for customers, for its own account, or both. Its registration requirements and permitted activities depend on applicable rules.
Crowdfunding
Raising money from many contributors or investors, often through an online platform. Contributions may be donations, purchases, loans or investments, depending on the arrangement.
Equity token offering (ETO)
A fundraising offering in which digital tokens represent ownership interests. The offering documents and legal structure determine investors’ rights.
Tokenized securities
Securities represented using blockchain tokens. The underlying legal arrangement determines what rights the tokens confer.
Digital assets
Assets that exist or are represented digitally. The term can include cryptocurrencies, digital tokens and tokenized rights to other assets.
Utility tokens
Tokens intended to provide access to a product or service. The label alone does not determine legal classification; the token’s design and offering can bring securities rules into scope.
Transfer agent
A service provider that maintains ownership records and records securities transfers for an issuer, among other responsibilities.
Tokenized asset offering (TAO)
An offering in which tokens represent rights associated with an asset. Dividing those rights into smaller units can enable fractional participation.
Tokenized assets
Assets, such as real estate or artwork, whose specified rights are represented by digital tokens. A clear legal arrangement must connect the token to those rights.
Stablecoins
Crypto tokens designed to maintain a value relative to a reference such as a currency. Designs differ, and a stable value is not guaranteed.
Soft cap
A fundraising target representing the minimum amount a project seeks. Whether contributions are refunded if the target is missed depends on the offering terms.
Smart contracts
Programs on a blockchain that perform specified actions when defined conditions are met. Program code is not necessarily a legally enforceable contract.
Security token offering (STO)
A fundraising offering involving tokens that represent securities. Applicable securities requirements, including registration or an available exemption, still apply.
Security tokens
Digital tokens representing securities or associated rights. Using a blockchain does not remove applicable legal obligations.
Placement agent
An intermediary that helps an issuer find investors and conduct a capital raise. Its role and required permissions depend on the engagement and jurisdiction.
Know your customer (KYC)
Processes for identifying and verifying customers and understanding relevant risks. KYC often forms part of a business’s anti-money-laundering controls.
Marketplace provider
A business offering a platform for trading assets, such as digital securities. Providing a venue can facilitate trading but does not guarantee liquidity.
Liquidity
How readily an asset can be bought or sold without substantially affecting its price. A shortage of buyers or sellers can make an asset illiquid.
Issuing platform
A service supporting the creation, issuance and administration of tokens. It may also offer investor onboarding, identity checks and transfer restrictions.
Initial exchange offering (IEO)
A token sale conducted through a cryptocurrency exchange. An exchange’s involvement does not guarantee the offering’s quality, legality or returns.
Initial coin offering (ICO)
A fundraising arrangement in which a project sells or issues digital tokens. Applicable rules depend on the token’s characteristics and how the offering is conducted.
Howey test
A U.S. legal test used to determine whether an arrangement is an investment contract and therefore a security. It originates from a 1946 Supreme Court decision.
Asset-backed tokens
Tokens linked to an underlying asset or right. Their value and holders’ claims depend on the asset, contractual terms and safeguards.
Hard cap
The maximum amount a project plans to raise in an offering. The offering terms specify what happens when that limit is reached.
Equity tokens
Tokens representing ownership or equity-related rights in a company. Voting rights, dividend rights and other terms depend on the legal structure.
ERC-20
An Ethereum standard for fungible tokens. It specifies a common interface for functions such as balances, transfers and spending approvals.
ERC-1400
A proposed family of Ethereum security-token interfaces, including features for partitioned balances and controlled transfers.
ERC-1404
An extension to the ERC-20 interface for transfer-restricted tokens. It provides methods for identifying transfer restrictions and explaining them.
Digital security offering (DSO)
An offering in which securities are represented digitally, often using tokens. The term overlaps with STO; documentation and applicable law determine the actual rights and obligations.
Digital securities
Securities issued or administered digitally, including through blockchain technology. They can represent equity, debt or other financial rights.
Debt tokens
Tokens representing rights associated with debt, such as a loan or bond. Interest, repayment terms and risks follow the underlying debt instrument.
Decentralized autonomous organization (DAO)
An organization whose rules and decision processes are supported partly or wholly by smart contracts and token-based governance. People can still have essential decision-making and operational roles.
Custodian
A provider that holds or safeguards assets for others. For digital assets, responsibilities can include protecting private keys and controlling transfers.
Sources and further reading
