4. Are NFTs Securities ?

What Are Securities?

A security is a financial asset that can be traded. Stocks, bonds, options, futures, and banknotes are common securities examples.

Notably, all securities are fungible, meaning interchangeable. Your ten shares of AAPL are just as good as my 10 shares of AAPL. Like quarters and dollar bills, nothing functionally differentiates one share of AAPL from the next.

There are four different types of securities: Equity, debt, hybrid, and derivatives. 

Equity securities represent a partial ownership interest in an entity like a business. If that sounds a lot like stock, that’s because it is. Shares of stock are the most commonly cited example of equity security.

Debt securities represent loans with pre-established terms on the size, renewal date, and, of course, the interest rate. The most common example of a debt security is a bond. Like most debt securities, bonds entitle their holders to regular principal payments, plus interest.

Hybrid securities contain elements and characteristics of multiple types of securities. An oft-cited example of a hybrid security is the convertible bond, debt securities that can convert into a predetermined number of shares.

Derivatives are a security whose price derives from the value of an underlying asset. For example, when you purchase oil futures on NYMEX, you’re not buying the oil; you’re buying the right to buy the oil at a specific price later (well, technically, the obligation). Since the oil futures contract was based on today’s oil price, that makes it a classic example of a derivative.

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