Right from the days of studying algebra in school, until now, we have used x as a placeholder. We have progressed today where the language permits x be used as a substitute for anything.
The phenomenon of tokenization is not an exception to this concept of x. While a phrase like ‘tokenizer for x’ can be looked at as a mere expression, It speaks a lot by clearly indicating that x can be substituted with anything. It includes real-world assets like real estate, collectibles, art, technology, and even secure information which re-establishes itself as a Whitelabel Tokenization Platform.
Security tokens have opened avenues that have facilitated the tokenization of everything. It might not be an exaggeration to say that Security Token Offerings or STOs have spearheaded the movement of Tokenization Platform.
While STOs have theoretically succeeded in positioning themselves as one of the most dependable and secure solutions for problems like liquidity and security camera, the process still seems a little sophisticated to a few of them. In the oncoming paragraph, we have simplified and summarised the method to tokenize.
It is already known, tokenizing assets helps in giving the illiquid asset/ the superpower of enhanced liquidity and security as well. In addition to these, tokenization also eliminates the costs involved in transactions as the smart contracts help in automating and validating a transaction.
How to Tokenize?
The process of tokenization, especially when it comes to Security Token Offerings, is pretty straightforward. At a bird’s eye level, the steps are as below:
- Identifying the asset to be tokenized
- Evaluating the Asset
- Smart Contract generation and Tokenomics
- Equity and the cash flow
- Filing for regulatory compliance
- Storm the market
Identifying An Asset
It might be relatively easy to create security tokens for widely-traded assets like gold and silver. Most of the common assets that already have a market might not have any problems in valuation. However, when it comes to tokenizing illiquid assets, an accounting auditing firm validates an asset.
Evaluating An Asset
After finalizing the audit, a smart contract has to be created. The smart contract should have the components of the price and number of tokens that fall in line with the value of the asset. Auditing firms, law firms and big consulting companies like Deloitte and PricewaterhouseCoopers can help in this process.
Smart Contract Generation
This step can be considered the oxymoron of STO creation. That is both easy and tricky – easy because of the availability of solutions and difficult because you will have to be meticulous and careful in every step involved.
Smart contract development companies like Blockchain App Factory can help you create perfect smart contracts for your security tokens. The smart contract will govern the total number of tokens and the number of tokens that will be distributed to the investors. This is one of the most important steps as it can determine the vitality of the token in the long run. Excess of supply can deter investors from investing out of the fear of the token not reaching high value. A deficit of supply can again deter investors because of low liquidity. A fine balance has to be arrived at between these two so that your Security Token Offering becomes a success.
Economics is the portmanteau of the words ‘token’ and ‘economics.’ This determines how your token is actually going to act as an investment. You can either choose to distribute equity tokens which represent ownership in the asset. This form of tokenization is quite similar to traditional stocks in a company.
You can alternatively, choose to issue profit sharing for cash flow tokens. These tokens might not represent ownership in the asset but entitle the owner of the token a share in the profits generated from the asset.
Reg D Filing
Reg D is the best option when you file your new security token. Reg D entails with it, plenty of benefits. As given on their website, Reg D entitles all accredited investors to invest in your STO, in addition to an upper limit of 35 other purchasers. Reg D also so gives the permission to advertise the offering or broadly solicit investments.
Finding a Broker/Dealer
The relevance of brokers lies in the knowledge that they have to connect the demand and supply. Broker/dealers are regulated under the securities exchange act of 1984 and are required to facilitate the process of buying and selling of new securities.
The distribution of tokens will depend on the token and the asset. While selling your tokens to a small group of accredited investors might be considered very easy, having several stakeholders might be a little bit cumbersome. In all of this, it has to be upheld that there are no lapses in legal compliance. It is highly recommended that legal help is taken throughout the process.
Blockchain App Factory will not only help you create the smart contract but will also and hold you through the entire process right from identifying an asset to marketing your STO. Our understanding of the industry, the technology that governs the Security Token Offering and everything around it will help you create the perfect STO and market it lucratively.
The Internet which started as something to connect devices has now transcended into connecting things and has given birth to the new buzzphrase ‘Internet of Things,’ abbreviated IoT. On the same lines, the time when everything will be tokenized is not far away.
Cryptocurrencies have already succeeded in bridging the gap between digital assets and the real-world economy. Cryptocurrency and the blockchain technology have ushered in a new era where the internet can be used as an intermediary for everything. With the advantages of raising funds with illiquid assets, accountability and security, it would not be a surprise if companies continue to adopt tokenization of their assets resulting in acceptance of blockchain in financial services.
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