How do security tokens differ from traditional cryptocurrencies?

Security tokens are distinct from traditional cryptocurrencies primarily because they represent ownership in real-world assets, such as equity in a company, real estate, or other underlying assets. This aspect means that security tokens are subject to regulatory compliance, aligning them with securities laws in various jurisdictions. This regulatory framework is necessary because security tokens typically involve an investment contract, providing rights or ownership akin to traditional investments.

Unlike cryptocurrencies that may serve as a store of value or method of transfer without direct ties to substantial physical assets, security tokens are inherently linked to the value of the underlying assets they represent. This feature is crucial for investors seeking legal protection and clarity regarding their ownership and the nature of their investment.

In contrast, the other answers fail to represent the key characteristics of security tokens appropriately. While traditional cryptocurrencies may not require regulatory compliance, security tokens certainly do due to their nature as securities. Additionally, security tokens are not restricted to exclusive trading on decentralized exchanges; they can also be traded on regulated securities exchanges. Lastly, security tokens are not solely for speculative trading purposes; they can be used for a range of investment strategies and create value in asset ownership.