Asset Tokenization – Real Assets On The Blockchain

Investment avenues have changed over the last decade. Now, more and more people are looking for higher returns and margins from the blockchain and cryptocurrency domain. Another new technology has come up, and it promises to catapult the arena a step ahead of the times. It is tokenization which we are talking about. No matter what property you have, you can tokenize it. It may be real estate, paintings, metals, company shares, or just about anything. It is the process by which you can convert real assets into digital assets. 

Process of Asset Tokenization

Many of you may think that asset tokenization is a new process. However, it has been there since the 1970s. Tokens were earlier used to convert sensitive customer information into secure codes. It mainly aims to increase and improve the efficiency of any business. It has capitalized on a few technologies lately, and they are ledger technology, immutability, and transparent dealings on decentralized ledgers. 

Hospitals also use tokenization to maintain security for login credentials. It is also widely used in voting and banking. You can easily tokenize an asset today. Read on to know more about the simple process. 

  • Identification of an Asset – It is the first step in the asset tokenization process. It is already in use in the trade of precious metals like gold and silver. Moreover, you can get the price evaluation done by a competent authority like an accountant or an audit firm. 
  • Evaluation of the Asset – It is the next step in this process. After you have got the asset audited, you need to create a smart contract for it. You have to rope an audit firm for the same. Other competent authorities who can help you in this process are banks and law firms. 
  • Smart Contract Generation and Tokenomics – This part can be quite tricky, so you have got to be careful. You can get a developer to code it for you, or you may also do it yourself. While generating the smart contract, you have to ascertain the number of tokens and also enumerate the number of tokens you will be distributing in the market to investors. You also need to decide, how you are going to tokenize. It may be in the form of equity or profit sharing. 
  • Equity or Cash Flow – You can generate 50 tokens to represent 50% ownership in your firm. It is very similar to trading in a stock company. The token holder, in this case, gains more from the token, as your production and profits increase. Alternately, you can also make the 50 tokens represent a certain percentage of profits that your firm generates. In this case, the share of the investor is dependent on your profits only. 
  • Reg D filing with Law Firm – While filing your new security token, you need to get a Reg D (506 C). This type of registration is advantageous for investors as they can invest quickly. 
  • Selling the Tokens – File a sharing space filing if you want to sell within a year, or you can also launch your token on a security exchange if you can wait for one year. Get a broker or dealer license in this case. You can launch an ICO, or can distribute the tokens in various ways. Accredited investors are a good choice. 

Benefits of Real Asset Tokenization

Real estate tokens represent a fixed number of tokens, that can be used to distribute property ownership. It is mainly the process by which you can convert real estate assets into virtual estate tokens. Additionally, you can sell the virtual tokens in an online marketplace, where the purchaser of the token owns a portion of the asset. 

  • One of the topmost benefits of real asset tokenization, happens to be fractionalization. The system lowers the barrier to entry into the said investment scheme. Any small investor can invest in a fraction of any real-world asset. It can democratize the rights to the asset. A Digital Register of Members generally manages the ownership on a blockchain. 
  • The entire transaction or investment is governed by smart contracts. Therefore, whitelisting, compliance checks, and other legalities are handled well. 
  • Anyone can invest in a physical asset, partially. So, flexibility is another feature of real estate asset tokenization. 
  • Settlement time is also less, than what it would be for a physical asset sale or lease. It also increases the liquidity of the asset. 

Thus, you can call real asset tokenization a boon for the future. Blockchain happens to be the foundation of such a system and is all set to expand fast. It will also allow for better portfolio enhancement.

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