Why Calling It "Security Token" or "Tokenized Security" Actually Matters More Than You Think

The blockchain revolution promised to tokenize everything back in 2017-18, but the dream stalled. Now it’s making a real comeback, and everyone’s talking about it again—except there’s a growing terminology problem nobody’s properly addressing.

You’ve heard the terms thrown around: “security token” here, “tokenized security” there. Sounds like the same thing, right? Wrong. And the confusion is actually costing real projects money and opportunity.

The Fundamental Gap That Everyone Misses

Here’s the uncomfortable truth: these aren’t interchangeable labels.

Security tokens are blockchain-native creations. They’re tokens designed from the ground up for on-chain ecosystems, granting holders benefits like revenue sharing, governance rights, or platform access. They exist because blockchain enabled something entirely new—incentive structures that were impossible before distributed ledgers.

Tokenized securities, on the other hand, are just old-school financial instruments in digital clothing. Bonds, shares, funds, municipal securities—someone took existing assets and said “let’s put these on a blockchain.” The underlying asset is the same; only the wrapper changed.

Yes, all tokenized securities could technically qualify as security tokens under regulatory scrutiny. But the reverse isn’t true. Not every security token is a tokenized security. This distinction matters way more than academic pedantry.

Where Real-World Regulatory Pain Points Emerge

The consequences of blurring these terms are showing up in courtrooms and enforcement actions.

Take LBRY, the decentralized storage protocol. In 2016, they issued LBC tokens to fund development—tokens that granted users actual access to the platform. Seems like a utility token use case, right? The SEC thought otherwise, claiming the token sales were unregistered securities offerings. After years of legal battle, a judge sided with the regulators in 2021. The resource drain was brutal.

Then there’s Ripple, still fighting its SEC case into its third year over whether XRP sales constituted securities issuance. These aren’t quick settlements. They’re multi-year legal crucibles that set precedent and terrify other projects from experimenting.

Tokenized securities? They’re experiencing a completely different trajectory. Financial institutions are actively issuing bonds, commercial paper, shares, and even gold tokenization on blockchains. Where’s the regulatory hostility? Muted. International authorities are building explicit frameworks rather than wielding enforcement as policy.

Why The Regulatory Split Exists

The core difference is establishment support—or the lack of it.

Tokenized securities represent a digitization of existing financial infrastructure. Regulators understand bonds. They understand shares. They understand funds. Adding blockchain rail to these proven mechanisms? That’s an infrastructure upgrade, not a conceptual challenge. Banks and official institutions backing these experiments gives regulators confidence that custody, settlement, and transparency standards can be maintained.

Security tokens, however, propose new forms of financing, engagement, and value creation that don’t fit neatly into existing regulatory boxes. They’re riskier from a compliance perspective because they’re genuinely novel. Until the SEC and peers clarify the rules, every security token project operates in a legal gray zone.

The Investment Implication Most People Overlook

Conflating these terms creates dangerous market assumptions.

When people lump “security tokens” and “tokenized securities” together, they’re implicitly suggesting both have equal regulatory legitimacy. They don’t—not yet. This false equivalence makes security tokens look like mere blockchain versions of traditional assets, which massively undersells their potential.

Tokenized securities will absolutely reshape how institutions move capital and settle transactions. The recent experimental wave confirms that. But security tokens? If the regulatory fog ever clears, they could fundamentally rewire how investment and participation work—enabling economic models and engagement structures that didn’t exist before.

The Bottom Line

These aren’t synonymous terms. One represents innovation constrained by unclear rules. The other represents infrastructure modernization with regulatory tailwind. Treating them the same obscures that distinction and hinders the progress both deserve.

Better terminology doesn’t just matter for pedants. It matters for investors trying to assess risk, for projects deciding whether to experiment, and for regulators trying to build sensible frameworks. Stop conflating them.