4 steps to tokenising assets

Introduction

Tokenisation is set to reshape the landscape of finance and investment, setting a new era where traditional assets are digitised and made accessible to a global audience. 

Understanding the intricacies of asset tokenisation is becoming increasingly critical as it paves the way for a future where the digital realm intersects with real-world assets. 

In this article, we look at the four key stages of asset tokenisation. It's important to note that while these stages provide a structured framework, not every tokenised asset will follow this exact structure. 

Part 1: Choosing the Asset to Tokenise

The first key decision in the asset tokenisation journey is selecting the asset itself. Virtually any asset with value can be tokenised, but the choice depends on the desired outcomes and the asset's characteristics. We can draw inspiration from various asset classes that have already embraced tokenisation:

• Debt: Bonds and other debt instruments are prime candidates for tokenisation. Digital tokens offer enhanced liquidity and accessibility, democratising investment opportunities. 
• Equity: Company shares represent ownership in a company and can be tokenised to enable numerous benefits.
• Real Estate: Tokenising real estate assets unlocks fractional ownership and liquidity in traditionally illiquid markets. Investors can purchase tokenised shares, eliminating the need to acquire entire properties. 
• Art: Tokenisation of art allows fractionalised ownership of high-value artworks, making art investments more inclusive.
• Stablecoins: Stablecoins, pegged to stable assets like fiat currencies or gold, can be tokenised to facilitate efficient global transactions and reduce associated costs. Tokenisation of stable assets on blockchains provides an on-ramp for traditional investors to enter the cryptocurrency market.

By understanding these use cases, we gain insights into the range of assets that can undergo tokenisation. 

Each asset type presents unique opportunities and challenges in digitisation, making it essential to choose the right asset based on your goals and regulatory considerations.

Read our article on 6 tokenisation use cases here.

Part 2: Structuring the Asset

The second phase in the asset tokenisation journey involves the structuring of the chosen asset. This step consists of two stages: deal structuring and compliance checks, both of which are influenced by the unique characteristics of the asset in question.

Deal Structuring: 

During the deal structuring phase, the financial aspects of the asset tokenisation process are carefully considered. This includes defining the fundraising goal and structure, determining the asset's valuation, and projecting the anticipated expenses and returns. These financial considerations play a key role in shaping the overall tokenisation strategy and ensuring a successful outcome.

Whether it's a corporate bond, real estate property, or a carbon credit, the deal must be structured to align with the asset's characteristics. For instance, tokenising a money market fund requires a different approach than tokenising a carbon credit. The former is a financial instrument that provides liquidity and typically operates within a regulated framework, while the latter is an environmental commodity subject to its own set of regulations and environmental standards. 

The deal structuring phase necessitates a deep understanding of the asset's unique properties and market dynamics to ensure a seamless transition into the digital realm. This  understanding enables the creation of a tokenisation structure that is both financially sound and legally compliant, laying the foundation for a successful tokenisation project.

Compliance Checks and Custody: 

Regulatory compliance is a foundation of asset tokenisation. Whether an asset is treated as a security or a commodity, it must adhere to specific regulatory frameworks to ensure legal and operational integrity. 

In cases where the digital asset has a physical counterpart, such as traditional securities or real estate, the physical asset must be securely stored with a custodian. This custody arrangement guarantees the safety and neutrality of the asset, protecting the interests of all parties involved. 

Additionally, compliance checks encompass not only regulatory requirements but also considerations related to taxation, accounting, and legal obligations. Ensuring that the tokenised asset complies with these multifaceted aspects is paramount to a successful tokenisation process.

The choice of jurisdiction for asset tokenisation is a crucial decision. Some countries, such as Singapore, Luxembourg, and the Cayman Islands, have established clear guidelines and frameworks to facilitate asset tokenisation. In contrast, other jurisdictions, such as the United States, have yet to develop comprehensive regulatory frameworks. Given the complexity of the regulatory landscape, seeking professional guidance is important to navigate the difficulties of asset tokenisation in a specific jurisdiction.

Read our article on EU regulatory framework guidance for tokenisation here.

Part 3: Structuring the Tokenisation

In Part 3 of the asset tokenisation process, the focus shifts to structuring the technical aspects of the project. This phase lays the foundation for the digital representation of the asset on the blockchain and it includes several key components.

Tokenomics Design: 

A fundamental aspect of the tokenisation process involves designing the tokenomics of the launch. 

This involves making important decisions about the digital asset's structure, such as opting for a Non-Fungible Token (NFT), a standard ERC-20 token, or a personalised standard with embedded rules, such as necessary compliance checks, restricted transferability, or privacy measures.

Additionally, considerations regarding the choice of blockchain network are vital, as different blockchains offer unique features and capabilities. The choice of blockchain network is equally crucial, as different blockchains offer unique features and capabilities that can significantly impact the tokenisation project's success. Carefully evaluating the suitability of different blockchains, considering factors such as transaction fees, scalability, and security, is essential for selecting the network that best aligns with the project's requirements.

Blockchain network examples include Stellar, which offers several advantages for tokenisation projects, including fast and low-cost transactions, scalability, multi currency support, and a built-in decentralised exchange (DEX). The Ethereum network is one of the most established chains with over 400,000 daily active wallets [Dune, ‘23]. It offers several advantages for tokenisation projects, including smart contracts, a large developer ecosystem, high liquidity, and robust security measures.

Key elements when structuring the tokenomics include defining how tokens will be distributed among various stakeholders, establishing clear token utility within the project's ecosystem, determining the total token supply to prevent inflation, and implementing mechanisms to stabilise token prices, such as buyback and burn mechanisms.

Token Creation and Marketplace Selection: 

Following the design phase, the next step involves translating the tokenomics model into reality. 

This entails creating the smart contracts required to launch the token on the chosen blockchain network. Smart contracts are self-executing contracts with the terms of the agreement directly written into code, ensuring transparency and automation of key processes. 

Additionally, the project must decide whether to leverage a third-party tokenisation marketplace or develop its own. The choice between these options depends on various factors, including the project's specific requirements, expertise, and resources. Third-party marketplaces offer convenience and established infrastructure, while developing a custom marketplace provides greater control and customisation options.

Part 4: Tokenisation Launch

Successful tokenisation requires a strategic approach to attract the target audience and generate the necessary momentum for a strong launch.

Marketing and Business Development: 

Effective marketing and business development efforts are essential to ensure a successful tokenisation launch. 

This phase involves crafting a comprehensive strategy to reach and engage with potential investors. Content marketing plays a crucial role, with blogs, social media platforms, and informative materials serving as valuable tools to disseminate information about the project. 

Public relations (PR) activities can help generate awareness and credibility, building trust among potential investors. Outreach efforts, both warm and cold, are vital to connect with the right individuals and organisations who may be interested in participating in the tokenisation. 

Building a strong network and fostering relationships with key players in the industry can greatly enhance the project's visibility and appeal.

Zephyr Social is building out a division focused on GTM services for tokenisation providers, feel free to contact Maddy here if you’d like any advice.

Conclusion

Tokenising assets is a complex, phased process but grasping the fundamentals enables deeper understanding. First, the asset itself must align to desired outcomes and market dynamics. Next, structuring considerations involve deal specifics, custody, compliance, token economics, and blockchain infrastructure. With foundational decisions made, programming brings tokenised representations to life before eventually executing a tailored launch to network participants.

While tokenisation workflows vary across asset categories, these core stages offer a blueprint. As adoption accelerates, familiarity with technical integrations, legal diligence, and distribution techniques will prove key to navigating this brave new world of tokenised finance. Recognise these phases, and you recognise the mechanisms revolutionising asset ownership.