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How to tokenize your business and other asset types

Tokenization For Businesses 101: what it is, how to apply it to your business, and what actual benefits it provides.
1 JUNE, 2021
Capital Raising

What is tokenization?

Tokenization is a scope of technical and legal processes that transfer asset ownership rights to the blockchain.

This process works in two possible patterns:

1. Tokenization of physical assets. Such an approach is relevant for tokenizing commodities or art: the property rights are represented in tokens while the physical form of the asset is still retained. The main difficulty of this tokenization pattern is maintaining the connection between the physical object and its digital representation.

2. Dematerialised assets. It suggests issuing tokens that stand for assets with no primary physical representation. Dematerialization can be applied to a wide range of assets like stocks or digital art, which means that when tokenized the only form in which these assets will exist is tokens.

Types of assets to be tokenized

Financial instruments. Tokenization of financial instruments such as stocks, bonds, units of investment funds, derivatives, etc., makes them more liquid and accessible online to investors all over the world. It also serves as a great alternative to traditional fundraising methods, helping businesses to avoid all the drawbacks of attracting venture capital or taking bank loans.

Commodities. These are basic goods with substantial fungibility, which in simple words means that they can be exchanged for other goods of the same type. The most common examples of commodities to be transferred to blockchain are materials, primary resources, agricultural or mining products. When tokenized, commodities such as gas, oil, or precious metals are digitized and given an amount of cryptocurrency that matches their real-world value.

Real estate. Despite the fast growth and high demand of the industry, it faces significant challenges such as illiquidity and high costs. By using tokenization, one piece of real estate can be split into multiple tokens and offered to lots of investors at a much lower price. Raw land, residential, commercial, industrial, and special-use real estate — all offer great opportunities for both business owners and investors.
Find out about a successful use case of $18M tokenized real estate of a luxury resort — Aspen Digital.

Art. The technology enables both traditional and digital artworks to be represented by a blockchain-based token. Now owners of valuable paintings and rare collectibles can benefit from enabling other people to invest in their piece of art without letting go of the actual item. Investors, in their turn, don’t need to spend money on storing the item.

Digital art seems to provide even more opportunities; the boom of NFTs and multiple platforms for their issuance give artists a longed-for possibility to monetize their work. Such platforms help to access potential buyers and facilitate a quick, direct transaction of the art piece.

What are the advantages of tokenization?

Operational simplicity. Transferring the assets to blockchain makes a range of operations with them significantly faster and easier — the assets are accessible online from any part of the globe, 24/7, the transactions are transparent, and there is no need for the involvement of third parties (which also reduces the costs).

Availability. Apart from being available anywhere at any time, tokenization also makes digital assets affordable by lowering the minimum investment amount. For instance, investment funds set an investment threshold of one million dollars because accepting payments of a thousand dollars is just unprofitable — mostly due to the reason that the investment process itself is very complicated. Tokenization, on the other hand, simplifies the process and allows investments of small amounts.

Fractional ownership. One more driving tokenization advantage, which is especially relevant when it comes to investing in assets with a high unit price like real estate and rare collectibles, is fractional ownership. The whole item can cost millions of dollars; however, if tokenized, it can be split into a number of tokens worth as little as $1,000.

Increased liquidity. All of the benefits above combined with flexible and rapidly developing blockchain technology opens opportunities for enhanced liquidity (even if your company isn’t publicly traded).

An interesting blockchain application worth mentioning is the decentralized finance protocols. An automated market-making algorithm enables decentralized trading, so sellers don’t need to look for buyers for their tokens and vice versa. This protocol acts as an intermediary discovery of a counterparty for the transaction.

Additional opportunities. Using blockchain protocols provides lots of additional perks. The ability to stake tokens in lending protocols allows making a partial exit or getting the opportunity to use the money, even if the shares themselves are hard to sell due to a small trading volume. In this case, you can use the tokens as collateral against a loan so that they stay in the protocol growing in value, while you get some spare cash to use.

All these benefits of blockchain and digital assets are enabled with the right combination of centralized and decentralized technologies implemented in the Stobox Digital Securities Dashboard.
Stobox Digital Securities Dashboard is a white label solution to tokenize digital securities and conduct all operations with them in a convenient digital environment. Sell the shares, pay dividends, conduct corporate voting and corporate actions in a new, digital way. Raise capital and streamline investor relations.

Conclusion

Tokenization offers innovative ways of taking advantage of both traditional asset classes and their digital alternatives. Besides being a fast, convenient, and secure solution to operating digital securities, it also enhances liquidity. By facilitating fractional ownership, tokenization allows multiple people to invest in one asset and thus reduces the minimum investment amount making certain assets more affordable. Tokens that stand for pieces of art or collectibles provide ways of monetization for the art item owners or creators.

Do you feel like tokenization will benefit your business as well? Don’t hesitate to contact us to learn what tokenization strategy to choose and find out how Stobox Dashboard will simplify all operations and management of your digital assets.
1 JUNE, 2021
Capital Raising
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