SECURITIES TOKENS AND TOKENIZED ASSETS
Tokenizing assets is a process which uses digital tokens to represent ownership of real assets. Backing the value of a token with a tangible asset opens up the potential investor base to a wider market which is more efficient and liquid.
More and more companies have began to look into tokenization as a mechanism for financing. The assets used varied from commodity such as gold or silver, to fixed assets of a business to real estate properties.
Tokenizing an asset involves several key components:
- Asset Identification
- Asset Valuation
- Token Economics
- Equity and Profit Sharing
- Token Sale
The first step in tokenization is to identify an asset to back the tokens. The asset can be a commodity like gold, silver or diamond or a factory or a real estate property.
The next step after identifying an asset is to determine its value. The value of assets that can be readily traded in the market can easily be determined. Other assets may require an evaluation from a professional firm or an appraisal from a financial institution.
Once the valuation is established, the smart contract can be created where the price and number of tokens correspond to the value of the asset.
When generating a smart contract, a determination is made on the number of tokens created and how many will be allocated to the investors and other uses. This must be well thought out to ensure sufficient supply of tokens as well as not to deter the investors because the number is too high for the demand or too low to have sufficient liquidity.
Equity and Profit Sharing
Tokenized projects can offer equity ownership or a share of profits. In an equity scenario, the owner of the tokens will indirectly own a portion of the asset. The asset can increase or decrease in value depending on the business performance. This is similar to owning stocks in a company.
Alternatively, tokens can also be setup to share the profits in a business. In this scenario, owners of the tokens will receive pro-rata payout from the profits or cash flow of the company.
Once the above steps are taken, the tokens are ready to be sold to investors. Tokens can be sold directly from the company or through parties such as crypto exchanges.
Securities tokens offer in the United States must be registered with the SEC.