Introduction to Tokenization
Asset tokenization refers to the collective term of converting both physical and non-physical assets into digital ones.
Physical and real-world assets like real estate or luxury items such as art, collectibles or more can be tokenized onto a blockchain. These real-world assets can stem from real-estate, equity, stocks, bonds, and more.
These types of assets pose numerous benefits as per their utility token counterparts. The benefits associated thereof are a reduction in transaction costs, enabling of cross-border settlement, automation, and allowance of the enforcement and restrictions within the underlying technology dissuading the need for legal systems.
Security tokens (see STO’s) allow stranded assets to be liquified and traded in real-time. Real estate is an asset notoriously difficult to extract capital from; you essentially have to either sell the asset or get a bank loan against it. If you securitize such a stranded asset, you can immediately trade it (make the capital flow out of and into it).
Real-time pricing of stranded assets is notoriously difficult to gauge because it’s not like a skyscraper gets bought and sold several times a day so that you can see how much your skyscraper in the neighborhood is worth. So, knowing the true price of stranded assets is difficult. By tokenizing, you sort out the real price.
Standards and Resources
- FA1.2 - At its core, FA1.2 contains a ledger which maps identities to token balances, providing a standard API for token transfer operations, as well as providing approval to external contracts (e.g. an auction) or accounts to transfer a user's tokens.
Benefits of Tokenization on Tezos Institutional-grade smart contracts — Tezos utilizes formal verification, a process that proves the mathematical correctness of the code. The Tezos blockchain allows for the facilitation of formally-verified smart contracts. Essentially, prior to sending $1 billion over the blockchain, one can run a formal test to simulate the transaction and ensure it will execute smoothly. The kind of smart contract language Tezos has built allows one the discipline to mathematically prove a contract (off-chain, during its development) before putting it on-chain. So, formal verification is a practice one does. Other chains, like Cardano, will similarly allow formal verification. So why does Tezos makes such a big deal out of it? Because Tezos aims to be a high-security, high-value chain and wants to make rigor and safety key practices. In other words, formal verification within Tezos strides to be cultural.
Secure custody — Within the Tezos client software, it includes a formally-verified multi-signature contract. This allows for cold-storage deployment and management of smart contracts for the highest level of security. This, when aiming to be a highly complex, high-value blockchain, is crucial in storing and deploying large amounts of capital over the blockchain.
Upgradeability — Tezos features a formal mechanism by which network participants are able to upgrade the protocol through a formal amendment process. Essentially, any of the newest features/tech that emerges can be ported onto the Tezos protocol via on-chain governance. This feature will allow Tezos to last much longer and be able to evolve and continuously adapt to changing times.
Examples on Tezos
Logical Pictures and BNP Paribas launched 21 Content Ventures, an investment fund dedicated to films and series, offering the opportunity to take advantage of the growth in the audiovisual content market. Logical Pictures is an audiovisual group with subsidiaries specialized in the content industry. The fundraising campaign in the form of Security Token Offering (STO) to digitize its future portfolio of films and series. As a result, each title (represented on the Tezos blockchain by a security token) will offer more liquidity and transparency than a traditional share of funds.
The public financial institution CDC is leading a consortium with BNP Paribas CIB, Tokeny and Blockchain Xdev to build a Digital Interbank Currency (DIBC) using Tezos.
Experimentations will focus on : • Financial transactions involving digital assets settling on the Tezos smart-contract platform. • Implications of the “atomic” regulation of the delivery of regulated securities. • Operational impacts of a DvP including the implementation of a technological interoperability between blockchains. • Compliance with applicable EU regulations and contribution to on-going exploratory work in Europe.
In May 2020, BTG Pactual—Latin America’s largest standalone investment bank—formally announced the launch of ReitBZ, a USD ~1B REIT offered as natively digital (tokenized) securities on the Tezos blockchain. This real-estate backed token issuance marked the beginning of BTG’s commitment to utilize Tezos for all of its future digital securities offerings—a pivot from its previous Ethereum-based strategy.
Elevated Returns—the digital asset management company responsible for tokenizing the St. Regis Resort in Aspen, Colorado—selected Tezos as the default blockchain for its real-estate backed digital securities offerings. Elevated Returns began its transition onto Tezos with the migration of AspenCoin in February 2019. The company has since launched its own digital securities exchange, on which it is expected to offer over $1B in tokenized real estate assets on Tezos.
Inveniam is a data integrity platform for private markets that facilitates price discovery and liquidity for private equity and commercial real estate assets. Inveniam uses the Tezos blockchain as the backbone of its data integrity offering.
In January 2020, Vertalo—an industry-leading platform for digital asset lifecycle management—selected Tezos as its primary blockchain for digital securities issuance and lifecycle management. Also a regulated digital transfer agent, Vertalo has since announced over ~$200M in digital securities offerings from 20 different companies, all of which will be launched on Tezos.
Brazil’s largest crypto hedge fund, has announced in August of 2020 that they plan to launch the Brazilian Legal Receivables and Precatory Bonds Exchange (BBPR) using the Tezos blockchain. The BBPR will serve to perform the legal custody and execution of the tokenization of various assets using Tezos.
In January 2020, San Francisco based VC firm - Andra Capital announced that they will issue Silicon Valley Coin (SVC) via a Security Token Offering (STO). With collaboration from the Tezos Foundation and utilizing TokenSoft’s issuance platform, the STO will take place on Tezos. SVC will represent an unit of interest in the Andra Capital Open-Ended Fund.
Has announced in October 2019 that they plan to tokenize upwards of $640M worth of real estate alongside tZERO. The first of which will take place with Manchester, UK’s River Plaza - where Alliance Investments has stated they intend to tokenize at least $25M worth of value of the building utilizing the Tezos blockchain.
Founded in 2018, Fundament Group is a Berlin-based financial services company that has chosen Tezos as its default blockchain for future products offered. Fundament Group is also regulated by the financial market authority, BaFin and is committed to building end-end infrastructure for digital securities.
A financial services company focused on enabling digital securities through creating compliant digital securities, funds, equity, fixed income, and real estate. Securitize has worked alongside and collaborated with Elevated Returns in the transition of Aspencoin from Ethereum to Tezos and has $1B worth of aggregate deal flow expected to take place with the collaboration.
A London-based issuance and administration platform for digital securities. Globacap is regulated by the UK’s FCA (Financial Conduct Authority) and has chosen Tezos to be offered as the preferred underlying blockchain for all issuances taking place on the platform.
Taurus Group is a Swiss financial services company and a leading B2B (business-to-business) service provider in Switzerland for digital asset custody. Taurus Group has entered a collaboration with the Tezos Foundation and chosen to promote Tezos as its blockchain technology provider as well as utilize Tezos for digital securities issuances on its platform.
Baanx is a financial services company focused on becoming a leading, global infrastructure provider for digital assets. Baanx holds an e-money license in the United Kingdom and has developed a suite of products and services around digital assets for its issuance platform. Of the many products, Baanx offers a cryptocurrency mobile payment app with physical and virtual VISA cards issued in several countries. Tezos will be integrated as a payment option within the app in the near future.