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Tokenization

Most assets and securities can be tokenized. From real estate to gold to intellectual property rights, the way asset owners are structuring their assets, and the way investors are managing their investments are about to undergo a revolutionary change due to the emergence of “asset tokenization”. In this new process, tokenized assets, digitized securities or security tokens are created through distributed ledger technology, otherwise known as blockchain and serve as a digital representation or derivative form of their underlying assets. Some of the key asset classes that can be tokenized include:

Debt

Bonds, debentures, mortgages, mezzanine loans;

Cashflow

Revenue, profit, dividends, rents, income-bearing notes;

Investment Funds

VC, PE, CIS, crypto, real estate funds, REITs; and

Ownership

Fixed assets, equities, commodities, IP, arts/collectibles;

Crypto Assets

Bitcoin, stablecoins, cryptocurrencies, utility tokens

Security Token Offering (STO)

Security Token (“ST”) is a virtual asset, a financial instrument represented in tokenized form and being transacted and settled on the distributed ledger technology network. ST is emerging as an innovative way to facilitate capital raising and investment in businesses and projects. Security Token Offerings (“STO”) typically refer to initial offerings (not including secondary trading) of new securities tokens utilizing blockchain technology.

Initial offering of digitized securities, tokenized assets, or derivative tokens to investors are often referred to as Security Token Offering (STO), Tokenized Asset Offering (TAO), or Digitized Securities Offering (DSO). Tokenizing assets can create a new “token economy” through a frictionless transaction cycle from creation, from buying to selling of securities.

STO allows access to a broader base of investors globally with higher liquidity. Transactions through smart contracts reduce transaction costs and shorten settlement time. Pre-defined business rules in smart contracts and the immutable nature of blockchain provide additional transparency and improved corporate governance. The unique nature of tokens allows global settlement on digitized securities on the blockchain where underlying assets can be traded in a highly divisible way and 24/7 globally. This new way of fractional ownership, with a smaller investment size, and a cost effective model, could bring investment and secondary trading to a new frontier.

Benefits of STO

Currently, over 20 countries have a legal framework around digitized securities and security tokens. STO is becoming fully compliant and incorporates very unique corporate finance tools for traditional enterprises. Key benefits, include:

  • Reduced counterparty risk as settlement is done on the blockchain simultaneously;
  • Settlement of trades on Blockchain in a matter of minutes rather than days;
  • Increased liquidity of primary and secondary market opportunities;
  • Private equity funds and venture funds can offer their LPs an early exit;
  • Investor management and administration for STO can be streamlined through cap-table management automation;
  • Smart contracts make it possible to code ownership and transfer restrictions into the token subject to certain contingencies which vary from each jurisdiction
  • Simplification of accounting, auditing, and tax reporting processes;
 

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