Recent estimates place the current value of all real-world assets at around $256 trillion globally. While that jaw-dropping number is fairly stable, all of these assets keep changing owners on a regular basis.
Unfortunately, the processes used to trade these assets are completely outdated.
Ownership over a vast majority of real-world assets is still signified by pieces of paper. That’s why most transactions can take weeks or even months to complete. Asset trades are also plagued by extensive amounts of red tape, countless fees and various geographical restrictions. Furthermore, most assets are very difficult to subdivide, which makes their respective markets highly illiquid. Real estate, gold reserves and fine art are all great examples here.
Fortunately, with the recent development of tokenization, the way of owning and trading real-world assets might be on the brink of a true revolution.
Tokenization is an innovative process in which real-world assets get signified by digital tokens existing on a blockchain network. Once tokenization is performed, tokens essentially become digital stocks with irrefutable proof of ownership. A notable upgrade to any paper-based system, tokenization is the way how we’ll be managing assets going forward.
Why Tokenize Real-World Assets?
Regardless of whether we’re tokenizing a real-world asset or intangible items like intellectual properties, we create an environment of unparalleled liquidity that facilitates safe and quick transactions.
What’s more, by representing real-world assets with digital tokens on a blockchain, we can trade without the need for third-party brokers. Instead, blockchain’s immutability rids transactions of any wannabe fraud attempts.
Here’s a quick rundown of the key benefits tokenizing real-world assets brings to the table:
- Enhanced liquidity of assets (real estate is a prime use case)
- No need for a third supervising party as transactions are verified by the network itself
- Reduced entry barriers
- Attracts new investors through the possibility of fractional ownership
- Lower risks thanks to better market transparency
- Previously difficult and long-drawn trades get done significantly faster
- Transactions become cheaper due to substituting administrative expenses with self-authorizing smart contracts
As you can see, tokenizing real-world assets can be a genuine game-changer for a plethora of markets. We’re not dealing with mere cosmetic alterations – tokenization represents a radical series of enhancements that completely changes the market’s landscape. It levels the playing field for investors while cutting out the middle man, while also making transactions quicker and safer.
How to Tokenize an Asset in 10 Steps
Now that we’ve got the “whys” out of the way, it’s time to dive into the “hows” – TheBlockBox has prepared a ten-step guide to tokenizing real-world assets that will work for just about any model you’ve set your sights on:
#1 Asset Selection
The first step is to find a widely traded asset worth tokenizing. Ideally, your asset of choice should already have a sizable market so that you can properly evaluate the token value. If not, it’s best that you request a valuation done by an auditing or accounting firm.
You should then determine how you’re going to tokenize the asset. Are you giving equity or does profit sharing makes more sense?
This is also the step during which you research your competition – once you’ve got an idea for tokenization, you should do a thorough investigation on whether someone managed to beat you to the punch. Note, however, that someone doing it before you will not necessarily mean you should abandon your idea – if the competitor(s) is doing a poor job, you might be able to sweep in and attract their customers to a more well-rounded solution.
#2 Business Requirements
Once you’ve identified an asset worth tokenizing, you’ll want to be clear on what your business model will be down the line.
You need to have a clear vision of how your tokenized platform will be creating and delivering value. Make a plan for key operations, identify sources of revenue, define a customer base, deal with details of financing, etc.
Defining a solid business model is just as important as making a decision on what real-world asset type you’ll be tokenizing, so make sure to lay down the foundations your idea for tokenization deserves.
#3 Token Economics
It’s now time to define how your token economics strategy. The main thing you need to determine is how many tokens will exist and how many you’ll be distributing to the network users, developers, investors and creators.
Remember that too high of a supply can deter investors and users as they’ll be concerned with demand and token value. On the other hand, set your supply too low and your token could have low liquidity, defeating the purpose of tokenization all together.
What you also want to deal with at this point is the creation of a transactional economy between buyers and sellers. Internal economy is arguably one of the most important aspects as you need to create a framework that will be sustainable going forward, so take your time to clearly establish it.
#4 Technical Requirements
This step is all about transforming your vision into reality from a technical standpoint. You have only two real choices here: code the platform yourself or outsource to a blockchain development company. You can also look for some open-source smart contracts online and try to piece new solution, but you’ll have a hard time finding a blockchain expert to support you in this approach.
Unless you’re a talented coder, outsourcing a reputable team to tokenize a set of real-world assets is the way to go. A good team can create a top-of-the-line platform and have it running in a matter of weeks, giving you ample room to focus your attention on other aspects of your up-and-coming business.
Sounds like something your business would need? Let’s share a word.
#5 Legal Regulations
Depending on what kind of assets you’re looking to tokenize, this step might be relatively complex. This is because your new blockchain network will not be able to function outside of the law’s reach as you’re attaching tokens to a real-world assets.
The best course of action here is to simply get in touch with an experienced legal advisor. There are just so many factors to keep an eye on depending on what you’re tokenizing and where, so it’s best to leave it to professionals.
In fact, this step overlaps with the previous one – if you hire a quality team to do your coding, most of the companies will have an expert on board or can recommend you some a word-class legal advisor, to help you maneuver around regulations and legal pitfalls.
#6 White Paper
Writing and publishing a white paper is one of the crucial steps in the tokenization process. Up until this point, you’ve only dealt with experts in the tokenization and blockchain fields – however, going forward, your target audience will most likely not have the same blockchain-savviness.
Your whitepaper is what bridges the gap between blockchain/crypto connoisseurs and potential users/investors.
A whitepaper informs readers concisely about why token was created and what the platform can do for them. It’s primarily a piece of content marketing, but it should contain technical specifications, design and proposed prototype. That’s why it’s best that your whitepaper is written primarily by someone with experience in blockchain coding and later adjusted by an experienced marketer. That way, you get the best from both worlds.
In most cases, a whitepaper will be a collection of analyses and conclusions you made in the preparation stages of your project. That’s why it’s important to write it while the outsourced team is coding your vision into existence.
#7 MVP Development
This step will route you back to a more traditional path of product launch. You have to test your new platform by offering sufficient features to early adopters.
There’s a clear lack of older tokenization projects to look up to, so foreseeing how your platform fits within its respective market is still not something that can be competently done without an MVP. With this phase, though, you get to test the grounds and see precisely what’s missing from your business model (or what’s potentially a feature you can do without).
The final, complete set of features is coded after extensive testing and considering the feedback from product’s initial users who had a chance to test the MVP out.
With a tried and tested MVP under your belt, you’re now ready to start pitching to potential investors. And if you did a good job in previous steps, attracting investors should be a cakewalk.
At this point, you have a great sense of your platform’s position in the market, you can back your claims with valuable feedback from the MVP testing, you’ve got ample data at your disposal, all relevant regulations have been checked, etc.
In other words, all your ducks are in order, which is precisely what investors love to see.
#9 Prototype or Product Built
With the financial backing of investors, you’re now ready to start working on the final version of your tokenized platform.
Take into account all the feedback you received both from the MVP users and investors. The former is a direct line to what customers want to see implemented; the latter, is a necessity that can be very valuable too.
Soon, the final version of your product should be ready for production. Since you’ve covered all the bases, cutting the red ribbon should be a proud moment, so don’t shy away from turning it into a business spectacle.
#10 Network Expansion
If you’ve made it through all previous nine steps, congratulations – you now have a full-blown platform for exchanging tokenized real-world assets. However, the work hardly ends there, so don’t rest on your laurels.
Besides making sure everything continues to run smoothly, it’s now time to expand the network. Your main goal here is to attract end-users, which makes digital marketing your go-to weapo. Your team should be working on content marketing, PR, social media accounts, paid advertising, graphics, video marketing, referral programs, email campaigns, etc.
Even the best platforms in the world will not reach their peak if the ball is dropped in terms of marketing, so invest accordingly. Just make sure you hire a good team for the job, of course.
Tokenization of Real-World Assets is the Catalyst for Market Democratization
Tokenization is bound to play a transformative role in asset management for years to come. It holds the potential to truly democratize countless markets while making them safer and more fair.
The only true hurdle standing in the way of real-world asset tokenization comes in the form of legal boundaries. To what extent this obstacle stands in the way depends on what assets get tokenized – obviously, creating a platform for exchanging collector cards will have a much easier time than a network of priceless artworks.
Creating a legal bridge between blockchains and real-world assets requires novel legal entities that solve cross-jurisdictional and tax-related issues. Nevertheless, we feel like these concerns will be ironed out in the near future. After all, if legal hiccups are the only thing standing in the way of a significant shift towards a truly superior way of managing assets, it’s fair to expect that a compromise will be made sooner rather than later.