We have previously discussed the terms such as ICO, IEO and STO. In this paper, we are going to go into the details of a security token offering or STO and explain how it is beneficial for businesses.
The whole concept of security token offering is based on creating a token and then selling it against cryptocurrency or other more traditional forms of payment.
What is Tokenization?
The term tokenization of assets refers to the process in which a company or a person creates a blockchain token that is considered a digital representation of a real world asset, which is tradeable.
The concept is very similar to that of an IPO at a stock exchange.
The main idea behind tokenization is to create a digital twin of real and tradeable assets ranging from cars, properties, and in some cases bond certificates etc.
The digital twin is then broken up into a number of pieces and sold to the general public who are interested in investing in the asset. As a result, the person owning a token becomes an owner of the part of the asset.
While the basic idea is not something new, and has been around for several decades now with companies selling their shares, but blockchain makes the process of tokenization extremely easy.
You do not have to hold huge public offering events in order to sell your tokens. Instead, everything is very easy to set up, invest in or sell to someone else.
Benefits of Tokenization of Assets
The concept of tokenization will pave the way to a new “token economy”, which offers great potential for a much more efficient and fair financial world.
The token economy plans to achieve these efficiencies by reducing the friction that exists in the creation, buying, and selling of securities. Following are the key advantages of tokenization of assets.
Improved Liquidity
The tokenization of assets, especially the ones that are liquid in nature such as private securities or fine arts when traded on a low-friction environment such as blockchain improves the liquidity.
It allows the automated transfer of ownership and at the same time ensures compliance.
This reduced complexity and costs also lead to opening up the possibility to invest with fiat money and P2P trading on exchanges which are regulated, which in turn again boosts the liquidity.
No barriers
Not only does tokenization opens up the investment process to investors all around the world, without having to be present there physically, but the utilization of blockchain also makes the investment process secure, easy and fast.
No Middlemen
If you have ever been involved in trading, you know the process can take from days to months to achieve a settlement.
Not only does the whole process is carried out with the help of a trader or stockbroker, but the process also involves a third party to validate the documentation of transactions as well as the investor’s eligibility.
Tokenization removes all these formalities and makes the process extremely simple without the involvement of any third party entity with blockchains ability to provide transparency and immutability.
Fractional Ownership
When the digital twin of an asset is created, it is broken down into a number of fractional tokens to be sold to investors.
However, these investors are only allowed to invest in small percentages thus ensuring that more people are allowed to invest in the asset and no single investor can have all the monopoly or the power to influence any decisions made by the company.
Broader Investor Base
The fractional nature of these tokens allow the company to create millions and in some cases billions of tokens as there are no limits to the level of fractionalization as in real world assets.
This allows anyone and everyone with even the smallest of investments to enter the investment pool.
On top of that, no-territorial boundaries, and no investor’s eligibility checks allow even more people to participate.
Fast and Cheaper Transactions
The transactions of these tokens are done via smart contracts and thus are extremely reliable, cause no transfer or transaction fees and can be completed in a matter of seconds.
Unlike banks or other financial institutions, these transactions do not require 5-7 business days to be cleared.
Now the question may arise as to what are some of the assets that can be tokenized? And the answer is just about everything. However to make things even clearer, we are going to a few examples.
- Real estate,
- Venture capital funds,
- Commodities,
- Private equity shares,
- Physical goods,
- Ownership Interests in private companies,
- Partnership shares, and
- Exotic assets like sports teams, racehorses and artworks.
The tokenization of assets is a trend that is going to take over the world and replace all other traditional models of making investments.
One of the best thing about tokenization is that it opens the world of investment to common folks like you and me. One does not have to be a millionaire or have an investment firm in order to invest in these assets.
We at Netheru, allow both businesses and investors to take part in the tokenization based on Netheru blockchain.
Startups who want to finance their projects can tokenize just about anything on Netheru blockchain from shares, properties to works of art and investors who are looking to invest in these assets can easily get on our platform, make purchases with the help of quick and cheap transactions.
