Tokenization → Principle that consists in issuing assets in the form of Tokens, on a Blockchain, giving them a value recognized by its users.
Since the creation of the first Stock Exchange of Value in Venice, Italy in 1283 (governed by the State, and since 1315, took place the first auctions with Commercial Purpose). Passing by Bruges (Belgium) in the 13th century where people could exchange currencies from all over Europe, while fixing the future price of goods by anticipating the evolution of supply and demand.
Continuing with the first Stock Company in 1732 in France, in Toulouse with the ‘Moulins de Bazacle‘ having issued 96 shares freely transferable at market price.
The world of finance as we know it is the result of nearly 1000 years of evolution and change. More recently in our history, it was in the 1990’s, when financial markets opted for a predominantly electronic operation.
And even more recently, the Blockchain, Cryptocurrencies as well as Smart Contracts, have once again radically changed the world of Finance, with the appearance of ICOs (Initial Coin Offering, which should rather be called ITO – Initial Token Offering), followed by STOs (Security Token Offering) → moving us into the era of Digitization of physical assets.
The appearance of Tokens (Digital representation of financial assets from the traditional legal and financial world), has enabled a new revolution in the world of finance, establishing alternative investments to the traditional financing systems. This model is particularly subtle and ingenious, allowing communities to govern themselves.
Tokenization is also a real innovation in the financing of start-ups and the financing of Disruptive projects.
The digitalization of assets enabled by Tokenization is the counterpart of the Digitalization of information enabled by the Internet → Clément Jeanneau.
Today, everything can be tokenized:
- Real Estate – Houses – Whole buildings
- Works of Art
- Shares in an investment fund
- Debt instruments
- Digital goods of all types & all types of financial assets
Before going further, it is more than necessary to be comfortable with the specific terms of the Token world
- Security: In reference to the SEC (Securities and Exchange Commission) standards that define whether a ‘Token’ is a ‘Financial Security’ or not.
- Security Token : Are assets directly created on the Blockchain, their purpose is essentially to raise funds, while benefiting from counterparties (Financial, legal rights …)
- Tokenized Securities : Are the representation of already existing Financial Securities (Work of Art, Real Estate …)
Tokenization is the secure and immutable association of a Token with an immaterial or physical object on a Blockchain. This Token is a unique digital identifier and can be quoted on Markets. Its price will then be subject to the law of Supply and Demand.
When we talk about intangible objects, we mean: Intangible Assets, non-tangible goods such as:
- A website
- A database
- A patent
- Intellectual property (copyright, brand name, trademark …)
As you can see, everything can be Tokenized, as long as the physical or immaterial object can be divisible, fractionalized, we will talk about Fungible Assets (money, 1 Kg of Banana, a plot …). On the contrary of Non-Fungible Assets, which cannot be divisible, and are thus unique and irreplaceable objects by another, such as the NFT (Non Fungible Tokens) in the world of Art.
A family jewel is Non-Fungible, a building can also be considered as ‘Non-Fungible’, because it has an individuality, it is unique, it occupies a geographical location of its own, and therefore cannot be replaced identically, even if it can also be split and be converted into several Tokens.
Tokens are all (without exception) issued on a Blockchain (or DLT – Distributed Ledger Technology), which allows:
- To be created by any Internet user
- The segmentation of the Asset, which reduces the barriers to entry of the investment
- To use the characteristics of the Blockchain. Non-falsifiable, recording in an immutable register → Traceability
- Transparency of data, as the Token is registered on a Blockchain which is by nature immutable and transparent. Thus avoiding reselling the same Tokens several times. → Fluidity of transactions
- Short settlement/delivery and exchange times, exchanges possible worldwide, 24/7
- Flexibility, because the Token is programmable, it can be customized (Information such as: ownership, class of Share, Reference Number, or also location, age, temperature …) without limit, by granting it rights, which will be defined at the time of its creation, but once it is registered on the Blockchain, it is no longer possible to modify it
- A better liquidity, ease of exchange on the markets, lower costs, and especially the drastic reduction of intermediaries
- A peer-to-peer exchange without duplication (like a Cryptocurrency), in a decentralized way on Internet
- The use of Smart Contracts, which will be in charge of automating tasks (dividend payments), transactions and regulatory compliance processes (KYC/AML)
Here are some examples to illustrate this.
A real estate developer wants to build a shopping mall, but instead of soliciting a single Investor who contributes $100 Million, it is easier to find 2000 Investors who contribute $50,000. Each of these 2000 Investors buys 1 Token (or more) which will be expressed in ‘m²’, giving him a right of ownership, as well as a ‘passive’ income calculated on the number of Tokens held and on the rent paid by the shopkeepers of the shopping center (or other benefits, defined at the time of the creation of the Token)
A Mansion, a Villa, a Manor can be split, and put for sale in the form of Tokens on a specific site, giving the possibility to each investor to become a co-owner of the property, and to make a financial profit, either on the rental of it, or on the proceeds of the resale of its Token(s), which also means the transfer of the property registered in the Token
Being a co-owner of a luxury or classic car is one of the most profitable asset classes of the last decade.
And why not participate in the financing of public infrastructures (hospitals, schools, highways …)
If we want to simplify the principle of Tokens as much as possible, let’s take the case of the game Monopoly, which has its own economy, and whose banknotes are not usable outside the game
Or let’s take the principle of Casinos. In these places, everything works with a plastic ‘Currency/Token’, it is possible to buy and pay for everything with this ‘Currency’, as long as it stays within the establishment. And just like Tokens in the financial world, this Casino ‘Money’ will then be converted into Fiat Currency/Cash ($/€/¥/£ …) to be used elsewhere (and eventually exchanged for another ‘Money’ from another Casino)
Here are some concrete examples: Tokenization of:
- Real Estate: Propy, RealT (which records the fastest real estate sale on the Ethereum Blockchain, a house sold in 10 days through 258 Investors)
- Immobilized parcelled: in France in 2019, a particular Hotel estimated at 6.5 Million €, was cut into Tokens on the Ethereum Blockchain, in other countries such as the USA, Germany practice this kind of thing. In Switzerland a project of $ 134 Million has also been Tokenized in Zurich, in order to be sold ‘brick by brick’.
- Commodities: Oil Coin, Ziyen Inc (Oil & Energy)
- Diamonds: Alrosa & Tencent & Everledger, D1 Coin
- Gold: Digix Global, VeraOne
- Art (I’m not talking about NFT platform here): Maecenas
- NFT (Non Fungible Tokens): OpenSea, Rarible, NBA Top Shot …
- National currencies: Tether
- Film industry: Breaker
- Energy: Efforce, WPO
- High-end wine: Signum Crypto Bank, in Switzerland, allows for alternative investments
The world of Tokens, and Tokenization has no limits, we are just at the beginning, and people’s imagination will develop this new field, in ways we cannot yet envision.
Whether it’s a local or an international parallel economy, I’m sure that the coming months and years will bring us some great innovations.
When we know that (according to a Credit Suisse report) the world’s wealth is close to $400,000 billion, we can assume that the Token and Tokenization boom is not going to stop.
The tokenization market is estimated at $1,800 billion in 2019, with KBV Research‘s vision of $5,800 billion by 2026.
Who hasn’t dreamed of becoming a co-owner of an expensive collector’s car, a luxury villa or a masterpiece?
Democratizing investments in real assets is: Everyone can become an investor and shareholder, without having to pay huge sums. This environment is no longer reserved for a restricted group of privileged people such as banks, investment funds, business angels, the ultra-rich, venture capitalists, etc.
It’s time for people to trust the Blockchain and the future of this Technology.
Internet will become in the long run, the largest Asset market in the world, just like internet became the largest Library in the World – Balaji Srinivasan
See you soon
© Bitcoin Meister