The first time I heard tokenization I imagined a rain of tokens from the carousel.
Yes, nothing so realistic, but when I first heard about this topic (back in the mdi-2017), Security tokens and tokenization were really abstract concepts.
But, as I proceeded into the field, as I got more involved with ICO in different Advisory role, I understood that there must have been something beyond the Utility token. When I found Security Tokens (and Equity Tokens), I discovered a world.
Security tokens in the form of bond, represent a right on dividends ad a credit towards a company that had for example a crowdfunding issuing those bond-security-tokens. Equity tokens represents company’s shares and the owners of Equity tokens are fully shareholders into the company they bought the tokens from.
These tokens are also defined NFT (Non Fungible Tokens) meaning that if you buy them, you cannot use them for any other purpose. That non-fungibility should not be confused with the secondary market, that allows owners of Security Tokens to trade them on particular (and authorized) Exchanges. As far as I know, two different Exchanges allow now trading of Security tokens across the world and one of them is going to launch in early 2021 in Europe, while the other is already operating in America.
But let’s get back to tokenization. Why is it so important?
Two examples I like the most, are from Aspen St. Regis Resort (Colorado, USA) and River Plaza (Great Britain). In the first case they raised 18 million $ and in the second more than 25 million $. These amounts were not so important but St.Regis had a 224 million $ value while the River Plaza more that 600 million $.
Finding investors of such size is not an everyday task and that was the reason to setup a crowdfunding and issuing a few dollars worth token, has created a new market among retail investors.
I was talking with an artist just a few weeks ago and when he got to know that I am into the cryptocurrency field, the first thing he asked me was exactly how he could tokenize a portrait to create liquidity aimed to fund art schools for children in Africa. It was like midnight when we got into that talk but time flew and we promise each other that such a project cannot be abandoned, since we can impact so many lives.
Tokenization is a way to create liquidity on assets that would be otherwise be illiquid, such as real estate, art but also companies.
With a bond-based token after some time, when the bond will expire, you will need to refund the money. This is quite easy to understand and it is a sort of joint interest contract. You will take part into eventual profits, sometimes you will also have some guarantees on the starting capital.
With an equity based token, the owner will become shareholder of the Company, with rights on eventual profits. This kind of contract is usually easier to accept despite the innovative technology behind.
The choice between Equity Token Offering (ETO) and Security Token Offering (STO) depends on the relationship that the founders want to have with the funders and the financial cycle of the underlying assets and a Security Token Bond Based can be not so efficient for long financial cycle businesses.
