What are Securities? - Understanding the "Promise of Value"【Part I】

In a nutshell, a "security" is "a financial instrument that represents the right to receive future value or income."

Hello.
Mitsui from web3 researcher.

Last week we were updating the basics of web3 at noon on weekdays, but we felt that three updates a day was a bit much, so we will keep the same concept and update it again at noon on Saturdays and Sundays.

We will update the prerequisite knowledge to understand web3, so thank you again for your cooperation!

This week's topic is "Securities and Bonds".

1. Introduction: why you need to know about securities
2-1. General definition of securities
2-2. Securities as "promissory notes of value"
3-1. A broad classification of securities
3-2. History of securities: the world's first stocks and stock exchanges
3-3. The Potential of Paperless and Blockchain
4-1. Purpose of Securities Regulation
4-2. The Howey Test - "Is it a security?"Criteria for determining
5-1. The gray area between virtual currencies and securities
5-2.Security Tokens and STOs (Security Token Offerings)
6-1. The Significance of Understanding Securities
6-2. Next time: what is a bond? - "Certificate of debt" and web3 lending
Afterword.

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1. introduction: why do we need to know about securities

In recent years, the term "web3" has come to be seen more and more frequently.Although web3 is often simply described as the new Internet based on blockchain technology and crypto assets, there is actually a lot of financial knowledge that can serve as the "foundation" for understanding how it works.A typical example is "Securities" and "Bonds".

In this first part of this article, we begin by asking "What are securities?"and why the concept of securities is so important in the web3 world.In the second part, we will focus on "bonds" and how the "certificate of debt" mechanism of traditional finance ties in with web3's Lending and DeFi.

• Understanding the basics of securities will clear up regulatory issues and the nature of funding in web3's "token issuance".

• If you understand the basics of bonds, you will understand why "lending and borrowing" and "interest" in web3 are created.

Thus, in order to understand the intersection of existing finance and web3, it is important to first get acquainted with concepts that have been established in the traditional financial world.Let us begin by looking at the essence of the term "securities.

2-1. General Definition of Securities

A "security" is, in a nutshell, "a financial instrument that represents a right to receive a future value or income."The term "security" is used in this section.

For example, stocks indicate "the right to receive a portion of a company's profits as dividends," bonds indicate "the right to have interest paid back after a certain period of time," and mutual funds indicate "the right to have investors put their money together and receive a share of the investment profits.

The securities we actually hold in our hands may be "securities certificates" in paper form (such as old stock certificates) or electronically managed as account balances (such as electronic stock certificates).In essence, they are all "promises" that we may receive money in the future..

2-2. securities as "promissory notes of value"

A more imaginative way to describe securities is "A letter of commitment of value".

A stock is "a promise by a corporation to its investors to pay dividends and voting rights," while a bond is "a promise by a corporation or government to investors to loan them money and then promise interest and redemption."As a result, the investor who receives the security can expect to receive future profits or cash flow.

However, securities also carry "risk.

There is no guarantee that a promise will not be fulfilled (e.g., a company will go bankrupt, a country will default on its debt, etc.).For this reason, securities have developed "ratings," which indicate how creditworthy the issuer is, and mechanisms (such as collateral and insurance) to minimize the risk of loss.

3-1. broad classification of securities