Connect your company to the blockchain to create your unique digital identity by issuing a token (a digital share) for your business. Digitize your assets and raise new capital more easily. By 2025, 10% of global assets are expected to be tokenized. How can you benefit as a business owner and as an investor?
A token is a digital means to represent a unit of value. This unit can be assigned to anything held valuable, such as digital assets or digital representations of possessions. You can take advantage of what tokens and tokenization have to offer to you both as a business owner and an investor.
What Is Tokenization
When talking about cryptocurrencies, we speak about coins and tokens. A coin is generally a cryptocurrency with its own standalone blockchain (e.g. Bitcoin, Litecoin), it has similar characteristics as money, and is used for payments as money.
A token is typically a cryptocurrency that uses and is built on an already existing blockchain, e.g. DEXFIN Token (DXF), which is built on Ethereum. A token can also represent a share in ownership, a share in a company, etc. That’s why tokens can be used very well to tokenize a business.
Tokenization means emitting tokens and assigning them a specific value. Physical tokens have long been used to represent money. Some examples are casino chips, cheques, banknotes and coins, prepaid gift and shopping cards, as well as coupons. Tokens are also used to protect credit card information where the primary account number is replaced with a randomized number, called a token. Thus, we have been using tokens in many forms and for a very long time.
Tokenization is also a new form of crowdfunding for companies and a new opportunity for investors to participate in promising projects at an early stage to benefit from their growth and future profit.
Tokenization allows to divide one ownership right (e.g. to a factory) into individual tokens. Since tokens have up to 18 decimals, it is very easy for investors to support your company by buying a fraction of the shares in the form of tokens. Tokens can also be connected with a project, used as loyalty points, means of payment, etc. All these transactions are immutable and always transparently accessible on blockchain, which serves as a public ledger.
Stocks vs. Tokens
Let’s have some examples of the most expensive stocks in the world as of February 5, 2021.
- Berkshire Hathaway Inc.: 354,760.00 USD
- Lindt & Spruengli AG: 8,848.34 USD
- NVR, Inc.: 4,552.11 USD
- Seaboard Corporation: 3,156.63 USD
- Amazon: 3,331.00 USD
It is apparent that the prices of some shares can be prohibitive. Many people can’t even start thinking about buying any of these shares.
On the other hand, a token can have up to 18 decimals.
Thus, one quintillionth, or 10-18 (or 1e-18) is the smallest unit:
0.000 000 000 000 000 001
If the above-mentioned shares were tokenized, you could buy just a fraction, for a price accessible to anybody.
Examples of Tokenization
Let’s bring in some simplified examples of businesses that can be tokenized.
Forest: Say, you own a forest or a forest nursery worth $100,000. You need some money, but you don’t want to chop the trees down to sell them because you still want to let them grow to realize a bigger profit later on. You can prepare 100,000 digital tokens, where each token will represent 0.001%, or 1/10,000th of your forest. These tokens will be made available on a platform supporting smart contracts. Typically, these will be ERC-20 tokens on the Ethereum platform. From now on, anybody can buy any share in your forest, with some owning, for example, dozens of trees, and some owning just a fraction or a part of a tree.
Animal farm: You can proceed similarly with your farm animals worth e.g. $1,000,000, emitting 1,000,000 digital tokens, where each token will represent 0.0001%, or 1/100,000th of your farm. Some investors can own 10 cows, some will invest into a fraction of a cow which is easy to do, thanks to tokens.
Manufacturing plant: You can print 1,000,000 (or any other volume) digital tokens, each representing an equivalent part of this production factory. The investors can buy any share in your enterprise, from a big volume, down to a small fraction of your enterprise.
Real estate: You can emit tokens in the volume representing, for example, your office premises. The investors can easily invest into just a few square meters or square feet. Also, you can easily offer just a part of your premises to investors.
These are just a few examples to give you an idea how tokenization can be used. Any type of asset can be tokenized, including funds, equity, real estate, debt, etc. You can probably immediately see how effective this process is, cutting out all the paperwork and intermediaries. On top of that, everything is immutable and transparent on the public blockchain.
Tokenization: Connecting Issuers With Investors
Tokenization bears several advantages that fundamentally improves market access for asset holders and investors. Besides reducing the general costs of issuances, tokenization improves both the access and the attractiveness of assets. Let’s see the advantages both for the issuers and for the investors.
The Benefits of Tokenization for the Company (the Issuer)
All the advantages listed below relate to companies of any size: from large, through middle-sized, to small. The list of benefits is in a random order. Please check which features are the most applicable to and the most important for your business.
Better funding opportunities: Fundraising is a challenge for businesses, and most startups don’t have the resources necessary to raise funds in an IPO, through publicly issued shares. Crowdfunding as an alternative has its own challenges, and could be ineffective without a proper marketing campaign. On the other hand, offering digital tokens of your company could be a smooth and easy way to raise new capital.
Low-cost issuance: Tokenization disintermediates the issuance process, saving you valuable time and resources. The setup fee can start from around $40,000 – depending on the complexity of the project. Tokenization is a clear winner if you compare it with all the requirements to enter a stock exchange.
Digital management: Smart contracts enable digitized shareholder registries, automated reporting and corporate actions.
Fast execution: By standardizing and automating the issuance and management processes, the time to market is cut to a minimum. The whole setup and launch can be done in as little as 10 weeks from the initial assessment.
No intermediaries: Intermediaries, such as brokers, are not needed at all, whereby you save your time, money, and resources. The issuers offer their tokens (digital shares) directly to investors, providing transparent and immutable information.
Fractional ownership: Your assets can be fractionalised without any extra cost. Thanks to that, your assets are available to a large crowd of small investors, whose support can be an advantage for your business. Of course, you can also stipulate a minimum purchase, e.g. 100 or 1,000 tokens or a minimum purchase worth $50, etc.
Transferability: A fully digital infrastructure enables instantaneous and global transfer of asset ownership.
Automation: Many functions can be automated and simplified through the blockchain and smart contracts (computer protocols that enforce specific requirements or actions), cutting out middlemen and manual processes prone to error. With smart contracts, you can fully automate processes, such as distributions of dividends, commissions, waterfalls, etc.
Transparency: Blockchain and smart contracts rule out the asymmetry of information that often exists during the actual transfer of ownership of an asset, making the transaction smooth and transparent.
Immutability: Many businesses and institutions use their own databases with different levels of access for different users (e.g. restricted view on data vs. full view). There’s no mechanism to make this data immutable. On the other hand, blockchain technology adds an immense value into the process: Once an investor makes a transaction on a blockchain (e.g. buys your token), this transaction is immutable; nobody can change it or erase its history. This simplifies any auditing, since it is easy to show that the data has not been changed in any way, reducing time and costs.
24/7/365: Blockchain knows nothing about working hours, thus your tokens and assets are available every single second. Such increased liquidity creates great opportunities for investors.
Employee ownership possibilities: When tokenizing your own business, you can prepare a certain, perhaps a discounted, volume of these tokens for your employees, offering them a partial or fractional ownership in the company where they work. This motivates them to work harder for what’s best for your company, since the success of your business is their success, as well.
Cost savings: Tokenization brings in cost savings in many stages of the process, as we have already seen. What belongs here are for example reduced transaction costs, speed, automation, transferability, transparency, etc.
Your own digital identity: Tokenization gives your business its own unique digital identity, which means a tremendous advantage over your competitors.
Setting Up Tokenization
Of course, the whole process of tokenization has to be set up well, so that everything is smooth and efficient. All the steps have to be executed correctly, for example, the choice of platform, the blockchain infrastructure, compliance with laws and regulations, overcoming roadblocks to investor entry, etc.
In case you need reliable guidance, you can turn to DEXFIN to assist you with the whole process of tokenization.
The Benefits of Tokenization for Investors
Affordability: A token typically has up to 18 decimals. Thanks to this, the assets are available to investors who can make a purchase, starting from a very low amount.
Fractional ownership: The tokenization makes it possible to fractionalise the assets, making it possible for small investors to own just a fraction of their chosen asset.
Diversification: Fractional ownership allows investors to invest into more assets, by which they can easily and effectively diversify their investment portfolio.
Transferability: Since the tokens are digital, they can be easily transferred globally, from any place in the world to any other place in the world.
Rapid settlement: The transactions on blockchain can be completed, verified and checked within minutes after sending.
Low fees: The payments are settled in a matter of minutes, with very low fees.
Transparency: All transactions are immutably recorded on a blockchain that serves as a public ledger. This is an assurance of the utmost transparency.
Tokenize and Thrive
Tokenization brings many benefits to both the issuer and the investor. It is an exciting, fastly developing field, utilizing the most advanced technology. Tokenization allows the creation of a new financial system, that is transparent, efficient, cost-effective, fast and user-friendly. With new players building their infrastructure, tokenization is already a present reality. Mass adoption can be a matter of just a few years. Those who start early on and adapt to this new reality can derive great and lasting benefits from tokenization.