How does digital investment work – and who’s doing it best?
A quick introduction to the world of digital assets and tokenization
There’s been a lot of industry buzz about the potential of tokenization; the market is predicted to be worth $24 trillion by 2027. But not all tokens are created equal – or offer the same opportunities to enterprises.
What are tokens?
Within the tokenization market, there are a confusing number of differently named tokens, protocols, legal structures and brands. But in essence, all these variants boil down to three key classifications that you should be aware of:
Equity tokens – direct representations of share capital. Similar to a traditional stock asset, but instead of a paper certificate or excel spreadsheet, digital tokens are used to signify company ownership.
A lot of work is going into the regulation of these tokens across international jurisdictions. For example, the Liechtenstein government is in the process of rolling out its own Blockchain Act to standardise rights and protocol. Gibraltar, Malta and Estonia also have relatively well-developed frameworks.
It’s also worth noting that property-backed tokens are almost always an equity token. So, when investors purchase ‘property tokens’, they are actually buying shares in a company that owns properties. Commonly these companies are structured as REITs (Real Estate Invesment Trusts).
Debt tokens – these represent a right to outstanding debts or liabilities for organisations that borrow money. They can include corporate bonds, invoice factoring and retail debt and take their value from the ‘IOU’ or debt itself, any interest due and the debtor’s credit worth.
Fund tokens – funds raise money from investors to purchase baskets of assets such as stocks, bonds, cash, commodities or even crypto. They are wide and varied with different strategies and approaches, but all funds issue investors with ‘units’ that represent a proportional claim to the underlying basket of assets.
Many funds are now deciding to use a tokenization platform to run their fund administration – rather than paying an administrator to issue units and track ownership through a spreadsheet. Tokens can be utilised for both new and existing funds and can drastically reduce fund administration costs, which is good for both fund managers and investors.
How easy are tokens to use?
Theoretically, tokenization is much easier than traditional alternatives, because it allows organisations to regain oversight of the administration process, while drastically reducing bureaucracy and paperwork. There is a reduced need (or no need at all) to rely on third party custodians to facilitate transactions.
However, some early STO efforts have used very complex and opaque financial models, and this isn’t ideal for enterprises. For example, they have offered tokens representing equity in an offshore special purpose vehicle (SPV), which in turn has ownership rights over the assets or company where the value resides. These complicated legal structures confuse participants and often strip investors of important shareholder rights – such as voting.
The SPV approach is also very expensive, because someone needs to maintain and manage the complicated special purpose vehicle, and pay its directors and administrators. Enterprises headed down this route have often found that promised cost savings failed to materialise.
Is there someone making tokenization simple?
In contrast to what other early adopters are doing, WeOwn is focussed on making tokenization straightforward, transparent and effective for enterprise companies.
We are developing a product base with key differentiators to other market players. These include:
- Building our own blockchain – most token providers create their solution on existing public blockchains like Ethereum. However, this can compromise speed of performance and lead to fluctuating transaction fees. To offer a more secure, scalable solution, we’ve created a bespoke blockchain; to find out read our blog on reasons we built our own blockchain
- Enabling enterprises to engage investors – one of the biggest challenges for tech tokenizers is how to help companies actively manage their investor base. We have already solved this. Our ecosystem includes an integrated Decentralised Share Register, allowing businesses to view investor activity in real-time. Not only that, we have developed digital tools such as My WeOwn App, which enables businesses to communicate digitally with investors – for instance, launching online votes on key company resolutions.
- Minimising the administrative burden – most STO companies build a smart contract on a public blockchain to dictate who can participate in fundraising, but this still involves a heavy manual workload to manage the whitelisting. WeOwn’s bespoke blockchain makes it much easier to co-ordinate share sales, dividends and corporate actions, to ensure companies attract and reward the right type of investor.
- Enabling investment in fiat and crypto currencies – some tokenization providers will only let investors pay in cryptocurrencies through a digital wallet, which can deter cautious audiences. WeOwn offers payment in both fiat and crypto, opening up new fundraising opportunities, and reassuring those who are concerned about the volatility of their investment.
- Simplifying global regulation and compliance – WeOwn has a network of legal and regulatory partners that allow companies to issue assets in any jurisdiction, to any investor nationality. This makes it much easier for enterprises to build an international investor base.
- Managing the complete investor lifecycle – to truly revolutionise investment, the entire process needs to be simple. WeOwn’s ecosystem is an end-to-end platform for managing the complete investor lifecycle. From creating tokens and primary issuance, to secondary trading, managing investors and controlling corporate actions and dividends, we empower businesses to manage all their activities through a single provider.
- Innovating ahead of the market – in addition to helping smaller businesses fundraise through our platform, we are happy to be the silent partner in larger enterprises’ success. WeOwn offers a white-label version of our core solution for companies looking to run a large Security Token Offer (STO) in their own branding. We can also develop bespoke products and services for organisations that are focused on innovation.
I’m interested in tokenization; where should I start?
WeOwn is dedicated to not only simplifying the tokenization opportunity, but also to developing solutions for enterprises based on their business needs. Sign up to our Digital Marketplace to start exploring its potential.