You learned about what "tokenised assets" are in one of our recent articles. Following on from that, here is a simple guide to tokenising an asset yourself.
Let's quickly recap how asset tokenisation is different from distributing shares of an asset.
A key difference between tokenising your assets, and traditionally distributing shares of an asset, is control. When you allocate traditional stock to an investor, many jurisdictions allocate significant rights to the new major shareholder. This can be problematic if control is a factor in your new company. This isn't necessarily the case though for digital tokens, representing your asset and stored on the blockchain.
This difference could be significant for an entrepreneur looking to raise funds without losing vital control or direction. Reporting requirements may also be reduced or non-existent with asset tokenisation.
Tokenising assets such as gold or artwork though may require assessment and auditing by a professional accountant or law firm.
There are laws and regulations in place which can be confusing and are often relatively undefined, so for anything complex you may need to hire a consultant or work through a professional portal like 'nfty.property' when creating your tokens.
A quick guide to tokenising an asset:
Identify the asset - First, choose an asset you would like to tokenise. You may need to have a valuation done by an auditing or accounting firm. The valuation will ensure you receive a fair price - for you and the customer - for your tokens.
Generate a smart contract - Once the auditing is finalised, the smart contract has to be created on a digital marketplace like opensea.com or an industry specific market again like nfty.property.The price and number of tokens should correspond to the price and valuation of the asset. If you are tokenising the asset on your own, you can generate a smart contract as well through a company like Polymath or GoSecuirity. If you hire a professional, they will do this for you. When generating your smart contract, you will have to decide how many tokens will exist and determine how many of these tokens you’ll be distributing to interested investors. This is referred to as ' tokenomics' (the economics of your token).
Determine how you tokenise the asset - You can choose a) to give equity in the asset, b) profit-sharing (cashflow), or c) both. We will explain options a) and b) below.
a) Equity:
You can set the value of your new tokens to specific equity in your company. For example, you can generate 100 tokens to represent ownership of your company. You may then sell 25 tokens to represent 25% of the company.
This form of tokenisation is similar to a traditional stock in a company, you own a tokenised share of whatever you’re investing in.
b) Profit-sharing:
You could also issue 100 tokens and peg their value to a percentage of profits generated by the company.
For example, each token could represent 0.5% of profits generated. The token holder receives value from the profits generated from your assets as opposed to the rise in the value of the asset itself. This is similar to a traditional dividen payout, however far more ”liquid”, as you can trade the tokens yourself directly with interested purchasers. No middle man and no brokerage fees.
What can be tokenised?
Tokenisation allows the fractional ownership of an asset and also provides proof-of-ownership. Some examples of what can be tokenised include:
Venture capital funds
Commodities
Real estate
Sports teams
Race horses
Artwork
Asset tokenisation gets its value from the Blockchain. The Blockchain - where the tokens are stored - allows buyers to trace the entire history of a particular asset since its tokenisation.
Benefits of Asset Tokenisation for both the buyer and seller include; fractional ownership (lower entry point), reduced intermediaries (usually these are direct transactions from buyer to seller), less barriers to trade, faster transactions (blockchain transactions are instant and highly secure) and immutability.
These benefits can result in an easier and more profitable trading/market place.
If you’d like to know more about tokenising your own assets, raising investor funds on the blockchain, or how to increase your returns by leveraging assets in this new market, email any questions you have to hello@globalinvestorgroup.co.uk and we‘ll be happy to share what we know. You can also follow us on Twitters @freefromtax