How tokenization of your own product concept is done

Tokenization of products on Blockchain has been a trend for quite some time now. The buzz shows no sign of subsiding as yet since more and more people are tokenizing their assets. When you finalize the assets/asset you intend to tokenize, the first step is to list on exchanges shares to your asset. You decide on an asset, tokenize it and list it on blockchain platforms. In the meantime, there are certain fundamentals to tokenization that you must know.

Understanding Tokenization

Tokenisation is a process in which rights to an asset is converted into a digital token. In other words, you create a digital representation of rights to a property you own. There, depending on how much they want, a person buys certain percentage of shares to the asset you tokenize. In some cases, certain buyers purchase all tokens and become 100% owners of the property.

There are certain distinct differences when a tokenization is contrasted with securitization and fractional ownership. Tokenization converts real word assets into high-liquidity digital token, while securitization turns low-liquidity assets into security instruments with higher liquidity tradable in the markets as well as over-the counter. In the meantime, fractional ownership brings about a common interface for several unrelated parties to trade and interact in a digital world.

Zooming in on tokenizable assets

Almost anything that can be owned is tokenizable these days. Tokenization is no longer limited to the traditional asset class of real estate, bonds, venture capital funds and commodities. Now even exotic assets like artwork, precious metals, currency and sport teams can be tokenised. And there are very good objectives behind the tokenization of all these assets.

Firstly, let’s take the case of venture capital funds. This asset class has been traditionally illiquid. Long investment horizons exist and investors have to wait a good five to ten years in order to see a return on investment. But induction of the Blockchain applications can simplify the entry process for investors as well as lower purchase of investment portfolios and, most importantly, expedite the selling process. The resultant liquidity will help generate a hike for this asset class and bring in more participants, thereby allowing venture capitalists to access larger pools of investors.

When it comes to real estate, tokenization works by means of a fractional ownership. The upside to this is that it enhances the scope for high capital and market participation. It results in the creation of a real estate investment market. In other words, real estate tokenization facilitates a smooth investing process. It eliminates the role of intermediaries and brings in a simplified, cost-effective business model for buyers and sellers. It also relaxes the amount one can invest, thereby resulting in an inclusive marketplace.

Tokenization of commodities also generates new market opportunities resulting from sourcing of commodities and trading lifecycle. Per se, the conversion of physical assets into tradable digital assets strengthens liquidity and does away with the monopoly institutional investors have on asset classes.

In the meantime, tokenization of illiquid physical assets helps generate provenance, lending and price discovery by leveraging on the transparency brought about by the blockchain. The illiquid assets in question include artwork, wine, partnership shares and ownership interests across private companies amongst others.

Selecting a Blockchain Platform

All said and done, it is time to approach a blockchain platform. That said, there are three major types of platforms and you have to decide which bet suits your business needs.

· Public Networks - these are essentially decentralised networks and allow participation for all kinds of participants. They all allow participants to engage in mining of cryptocurrency, running full nodes and trading tokens amongst other things. In the meantime, the downside to this option is that public networks are relatively expensive and have speed impediment. As a result, they do not top the list of platforms for start-ups to approach.

· Permissioned Networks - these networks outperform public networks on many scores. They are fast, have low latency and high storage capacity. The minor downside is that though they are visible to the public some degree of restriction is exercised when it comes to participation.

· Private Networks - these networks are shared between the trusted parties and participation is exclusive, that is, there is no open participation for the public. The two excellent features of private networks are speed and zero latency. In the meantime, as opposed to decentralised networks, majority of the private networks do not use cryptocurrency nor have similar advantages in terms of security and immutability.

Legal and Regulatory Compliance

As decentralization is one of the most salient features of blockchain business, operators as well as participants are exposed to legal and regulatory uncertainty. To that end, it has been the concern of both governments and blockchain regulators to understand blockchain and appropriate laws to address decentralization. As such there are certain requirements that emerge to ensure legal and regulatory compliance.

· Jurisdiction - the nodes on a blockchain are located in multiple locations spanning the globe. This implies a transcendence of jurisdictional boundaries, and a whole world of jurisdictional complexities. To address the same, new legal and regulatory measures with extra-territorial effect are being adopted. One prime example is the European Union’s GDPR or tax laws. Therefore depending on the types of activities undertaken by a participant on blockchain, relevant and locally construed uniform laws will be in effect.

· Regulatory regime encompassing all technological solutions - essentially, regulatory licensing and compliance regimes are not aimed at specific technologies. The core objective so implied is the holistic regulation of the activities that a given technology generates. As such due assessment towards the nature and operations of a blockchain network and its participants is made to determine the appropriate scope for regulatory compliance.

· Governance and legal documentation - the blockchain platform embodies a utility-like nature. This necessitates documentation of the relationship between a given blockchain network and its participants. It is imperative to ensure a definitive governance model with regards to interactions amongst the participants of a network.

Blockchain comes with a unique novelty in terms of risks as a result of the nature of the technology involved and the manner of operations. The risks involved are along the lines of regulation, security, data protection, confidentiality, immutability, taxation, automation and decentralization amongst others. Therefore it is vital to ensure due assessment and documentation of the blockchain network and the transactions processed on the same.

KYC and AML Norms

Know Your Customer (KYC) and Anti-money Laundering (AML) serve the key objective of identifying clients and effective addressing of malpractices. Essentially, Know Your Customer (KYC) implies certain detail details a business keeps as threshold criteria to establish a clear picture of its customers doing business with them.

Tokenomics

As the name itself indicates, Tokenomics refers to the quality of a token. The quality in question is meant to convince users or investors to adopt it and play a role in building the ecosystem around the underlying project of that token. That said, Tokenomics encompasses anything that impacts the value of a token such as the following –

· The Team

A reliable team makes for a credible project. The chance of the coin gaining widespread adoption is dependent on the people behind the project. It depends solely on the team whether or not a project will garner the desirable hype it needs to become a success.

· Token Allocation

It is very important to look at how the token is going to be distributed following crowdsale. To that end, the project’s whitepaper contains the relevant details.

· Public Relations & Branding

A good community means everything to a project. Without it, a project is empty and hollow. As such it is vital to maintain a robust community as that will result in a more stable tokens.

In the meantime, there are certain challenges that hamper the process of asset tokenization

There is a trans-continental interest in tokenization, but governmental authorities and two-third of brokers look at it critically. However the barriers holding back the creation of a full-fledged token economy can be overcome nevertheless.

There is a problem around uncertainty with regards to code of conduct and universal standards towards the development and management of tokenized assets. This compels financial entities to review the architecture involved and expose investors to unwanted practices in the process. However this can be overcome with a solution in the form of formal frameworks that can build trust amongst all market participants and establish norms and regulations.

Uncertainty in regulation is also a valid reason for worrying. Blockchain’s borderless nature and resultant absence of a clear-cut jurisdiction can make investors nervous. However this is not an insurmountable issue. A solution can be achieved if regulators, local and global policy makers come together and coordinate to formulate a legal framework. Enforcing of existing KYC and other regulatory compliances will also help create a safe environment for the token economy.

Conclusion

Asset tokenization emerges as the most profitable blockchain applications for all parties involved — investors, creators and users. For creators, it is a tried-and-tested crowdfunding venture. It opens new markets for investors by lowering the bar of entry cost while, at the same time, giving users better facilities in the way of exchange of tokens. In the meantime, it is imperative that you thoroughly familiarize yourself with the ropes of creating and managing tokenized assets. This is because you need to find out what suits your business needs. Only then can your security token development company decide on the right infrastructure for the tokenization process.