The Token Industry Overview
In the digital age, it takes a single click to buy a match ticket from a club’s online store or an iPhone gadget from Apple. However, if you want to invest in the stock market or apply for a loan, the whole experience is more time-intensive. Most of these transactions take several days to months to be settled. Besides, assets such as precious metals, real estate, collectibles like art and antiques are not easily transferable, often forcing buyers and sellers to put up with mountains of paperwork and drawn-out procedures.
By representing real-world assets as digital tokens on a blockchain network, tokenization unlocks these assets’ value and makes it possible to trade them in real-time.
Currently, cross-border payments are flawed with delays, complexity, and inefficiencies. While payment is the main ingredient of global commerce, real-time payment is still a dream. The ability to represent physical assets on a blockchain brings the benefits of a secure and decentralized ledger while retaining their attributes.
In asset securitization, which began in the 1970s, contractual obligations, like mortgages, personal debt, and receivables, are pooled, and their cash flows traded as standard units. Tokenization goes a step further by “monetizing the right to use,” instead of restructuring cash flows like securitization.
Most financial assets are already digitized, like when fiat money is represented as numbers on a screen. Nevertheless, tokens enable both liquid and illiquid assets to move swiftly across networks and increase cross-border trade opportunities by eliminating geographical barriers. Tokenization unlocks new markets formerly frozen, or underserved, and brings fractional ownership to assets.
From 2015 to early 2017, the token industry attracted a lot of attention from a new class of investors, seeking to take advantage of the phenomenal growth and returns from cryptocurrencies. 2017 then became a crazy year for the token industry with digital tokens raising almost $7.4 billion through Initial Coin Offerings (ICOs). ICOs proved to be a novel way of raising funds for blockchain-based start-ups. Regulators worldwide were relatively silent on tokens due to the confusion of whether to classify them as securities, commodities, property or something else.
As regulatory guidance has been shaping up since 2018, two primary impacts have emerged. First, the “Wild West” (a term used to refer to the ICO market) is over for the token industry participants. It is now clear that in the US and other jurisdictions, compliance with the existing laws is required. The second impact of the token industry’s regulatory evolution is the clarity between a utility token and a security token, which has led to the emergence of Security Token Offering (STO).
Security tokens are unsurprisingly gaining mainstream adoption in the token industry, as the institutional presence on the cryptocurrency market reaches unprecedented heights.
What is Asset Tokenization?
Asset tokenization is the process of converting ownership rights in a tangible or intangible asset into a digital token on a blockchain. It can be compared to the traditional securitization process, but with a modern twist. Asset-backed tokens (ABTs) are created via a form of initial coin offering commonly known as a security token offering to distinguish them from other tokens.
An STO is used to create a digital representation- a security token- of an asset, implying that a security token could represent company shares, ownership of a property, or participation in an investment fund. ABTs can be traded on a secondary market, like the Tokenizer DEX.
You can tokenize Real estate, stocks, bonds, domains, venture capital, metals & commodities, intellectual property, FX & derivatives, identity, luxury goods, hedge funds, art, private equity, corporate debt, and others.
Tokenization can create a more effective and fair financial world by significantly minimizing the friction involved in the fundraising, investing, and trading of securities. It will make the financial industry more accessible, cheaper, faster, and efficient, unlocking trillions of dollars in currently illiquid assets, and significantly increasing trade volume.
The Rise of Tokenization
Physical tokens have long been used to represent real money. Casinos use chips and banknotes to represent ownership of an underlying currency. In 2001, TrustCommerce created the concept of tokenization to protect sensitive information for clients. A solution that secured cardholder information, preventing theft. TrustCommerce developed TC Citadel, which allowed customers to reference a token instead of their card data. TrustCommerce could then safely process a transaction on behalf of its customers without exposing their data.
From art to buildings, the way we invest in assets could be about to change with the arrival of tokenization fundamentally. The act of tokenizing assets threatens to disrupt many industries, particularly the financial industry, and those who are not prepared risk being left behind.
Since 2001, digital tokens have evolved a great deal. With the invention of blockchain technology, a vast number of use cases have emerged. Tokens can now be issued to represent a tangible or intangible asset, and offer a great deal of flexibility over traditionally illiquid assets. For example, a fraction of an asset can be owned when it is tokenized. Smaller investors, unable to contribute to large commercial projects, can now own a small portion of a large scale project.
Blockchain provides low fees on transactions, creating the opportunity to raise funds globally from a wide array of investors. Ownership of these assets is indisputably recorded on the blockchain, independent of the asset.
The future of asset-backed tokens and blockchain-based derivatives looks promising. Tokens allow the traditional market structure to be reimagined, creating opportunities for businesses and efficiencies for investors and issuers.
As jurisdictions around the world are proactive with token issuance, it’s just a matter of time before we see regulators, such as the SEC and FiNRA, following suit. Adoption from regulators will create more efficient market infrastructure solutions than the current ones and spark innovation within traditional finance, unlike anything we’ve seen in the past.
New Ways of Thinking About Business and Society
Tokenization presents buyers and sellers of alternative assets with the functionality to tap into opportunities never before experienced in finance, business, and society. Ease-of-use slashed costs, distribution of rights and proceeds, and the ability to keep control of partially liquidated assets are some of the benefits of tokenization.
Consider the opportunity of a company to distribute rights and proceeds for a fraction of the cost that big tech companies pay to distribute dividends and voting rights with their shares. The price disruption model allows small profitable companies to distribute a portion of their profits to their shareholders in a pre-IPO setting, enabling them to go public with an established market price from the token sale. With the automation of business processes facilitated by smart contracts, it is also easier to implement project rules, both initially and as the company matures.
The new opportunities for real estate owners are countless. Consider the opportunity for an apartment owner to distribute ownership of the building and rental revenue to multiple corporations, relatives, or children. With the automated enforcement functionality available in smart contracts, owners and landlords can leverage tokenization to automate the enforcement of rental agreements or automate a suspension or change to the enforcement of rental agreements in the event of a natural disaster, state of emergency, or public health crisis.
Residential real estate developers can now automate the rights assigned to buyers of condominiums, including voting rights, equity in the overall development, and revenue from commercial spaces in multi-use buildings. The economic community developed from one piece of property can quickly and easily become tight-knit.
If resident owners of each condominium earn a certain percentage of the rent derived from the restaurant on the first floor, they save money on every meal they eat and smile to the bank every time they walk by and see it crowded with their neighbors. If every resident owner has a vested interest in the business’s success on the first floor, they are bound to support it and have hundreds of daily eyes on it. The restaurant’s primary customer base is its landlords, who all have a financial interest in eating there.
Art is another major illiquid asset. Owners of works by famous artists can now tokenize the whole work, or a portion of it, and share it with the world. This gives the owner a current market-based valuation for the work, which can be used to determine value in real time. As real-time market-based valuations of art come into conflict with professional appraisal values and insurance valuations, we anticipate some market disruption.
The opportunity for buyers to own a piece of a famous work at a global scale could be revolutionary for the entire industry and culturally egalitarian on a scale not seen since the advent of the Internet. Tokenization enables major museums to liquidate vast sums from their collections while retaining full ownership, custody, and possession.
Problems Facing the Growth of the Token Economy
Compliance: There is a lack of clear regulations for cryptocurrencies generally, and asset-backed tokens specifically, in many jurisdictions, but this problem erodes annually on both fronts.
User adoption: Holders of traditionally illiquid alternative assets like art and real estate may not be familiar with marketplace trading in a DEX environment.
Trust: The 2017 cryptocurrency bubble is still fresh in the minds of investors in the cryptocurrency space.
Security: The recent growth and popularity of Ethereum-blockchain decentralized finance businesses come with an uncertain measure of attention from hackers and crypto thieves.
Conflict of laws: As national and international legal systems adapt to blockchain commerce and blockchain evidence, occasional conflicts with traditional laws and existing contracts become inevitable.
Proof of ownership: Standards for proof of ownership of any asset vary broadly by national jurisdiction. Blockchain standards for proof of possession of physical objects are in their early stages. Tokenizer plans to further the study of this field.
The Solution Statement
By enabling users to tokenize their assets and new classes of assets, Tokenizer opens the doors to financial flexibility unfamiliar to most classes of investors and many classes of assets. We solve cost efficiency, ease-of-use, and convenience in asset liquidation, trade, and fundraising problems. Our DEX, launchpad and investment platforms run on the Ethereum network because of its security, transparency, and breadth of functionality across the world of decentralized finance. With Ethereum 2.0 on the horizon, Tokenizer is well-positioned to develop tokenization functionality in the future.
Our goal is to empower users to tokenize, invest, and trade in traditionally illiquid assets.
Our Products
Tokenizer is a self-service blockchain banking platform for a complete-cycle token offering experience. We are a fully compliant token issuance company where you can issue, fundraise, invest, and trade in asset-backed tokens. Anyone from any part of the world can tokenize their offerings for $X with or without coding skills.
Tokenizer believes that everyone deserves equal access to investment and fundraising opportunities. That is why we are democratizing access to capital for investors and fundraisers by making investing and fundraising efficient, safe, and accessible to everyone.
- Asset Tokenization
Asset-backed tokens are a digital representation of real-world assets such as real estate, commodities, luxury products, private equity, venture capital, bonds, fine art, hedge funds, metals & commodities, FX & Derivatives, and others.
Tokenizer has already completed the issuance and sale of one utility token- the XR Web Token. More projects, such as VC/PE Funds, stocks, bonds, commodities, and real estate, are coming soon to the platform.
The Tokenizer self-service issuance platform ensures that anybody can create their security tokens without mastering a smart contract language. Besides, instead of introducing cumbersome and complicated third party wallet management tools, we have kept the whole experience within our browser by eliminating the complexity of managing a wallet from the user while maintaining high-security standards.
Why should Users Tokenize Their Assets?
Apart from the funding process typical to all ICO-based investments, the main reason for tokenizing an asset is to improve its liquidity, as defined by how easily an asset can be bought or sold. Liquidity relates strongly to an asset’s trading volume. For instance, stocks and bonds are somewhat liquid, while cars, real estate, jewelry, and collectibles lack high volume secondary market trading activity and liquidity.
Liquidity boosts the value of the underlying asset since it eradicates the risk of not being able to exit quickly. A 24/7/365 token trading market increases price discovery, reduces price volatility, and lessens “flash crash” risk.
- Fundraising
Fundraising has been taking place for as long as people have been using money to carry out business transactions. In recent years, the options available have grown from self-funding and peer-to-peer loans to early applications of what we now call angel investors, bank loans, government grants, and internet-based crowdfunding.
In recent years, a revolutionary alternative, blockchain-based crowdfunding, has risen.
The fear and uncertainty of blockchain fundraising are being defeated by introducing new types of blockchain funding options available in blockchain investment banking platforms like Tokenizer.
Types of Fundraising Options Available on Tokenizer
ICOs
Initial Coin Offerings allow people of all backgrounds and geographical locations to finance the development of a business. ICOs are a significant source of fundraising.
STOs
Security Token Offerings are an alternative to ICOs. One type of security token offering, asset-backed tokens, are a specialty at Tokenizer.
IEOs
Initial Exchange Offerings are the most recent prototype and improvement to ICOs and STOs. They have similar aims, but they implement superior efficiency and accreditation. In IEOs, we generally combine the public accessibility of funding websites, ICOs, and STOs with some aspects of assistance and guidance that an incubator or angel investor might bring to different phases of a project.
Why should you use Tokenizer to Fundraise?
Immutability
The use of cryptography techniques and coding of smart contracts, blockchain-based fundraising methods are trustlessness. Once a smart contract has been written, the outcome (funding of a project or a vote) will be automatically executed when the conditions are met.
Elimination of intermediaries
As a trustless network, blockchain-based fundraising methods eliminate the need for the intermediaries and inefficiencies created by traditional methods. Fundraising via Tokenizer lowers entry barriers to investment and facilitates 24/7 trading. The elimination of mediators also means that there is little chance of mischief.
Fractionalization
Tokenization enables fractional ownership of assets. For instance, a token can be issued at $50 or even $0.25, enabling more potential investors globally, who cannot afford to take part in traditional investments to own assets.
Flexibility
Smart contracts and tokens can be customized to do anything that is codable in an if/then statement, providing limitless potential alternatives that benefit investors.
Decentralized Exchange
Tokenizer DEX offers crypto users a complete crypto trading experience, allowing them to enjoy an innovative and secure trading environment. At its core, Tokenizer is designed to revolutionize cryptocurrency trading and investing based on three pillars—innovation, simplicity, and security.
The Benefits of a DEX
A DEX:
– Eliminates third parties, returning power to Peer-to-Peer (P2P), permissionless models devoid of central entities.
– Brings censorship resistance, which means no central entity can forcefully impose regulations, or even ban currencies and the exchange itself.
– Heightens security by placing each user in private control of their funds; hence, there is no central point of attack.
– Facilitates faster and more affordable transactions than a CEX, as there is no third-party authenticator.
– Utilizes smart contracts to enable transactions and exchange benefits from the cryptographic security of the underlying technology.