By Samson Lee, Founder & CEO of Coinstreet Partners
From real estate to gold to intellectual property rights, the way asset owners are structuring their assets, and the way investors are managing their investments are about to undergo a revolutionary change due to the emergence of “Asset Tokenization.” In this new process (Diagram 1), tokenized assets, digitized securities or security tokens are created through distributed ledger technology, otherwise known as blockchain. These serve as a derivative form of their underlying assets, such as equity, debt, real estate, commodities, artwork, IP rights or cashflow bearing notes. If done properly, they should be fully compliant securities products, with a blockchain token wrapper, and in compliance with other pre-defined immutable contractual conditions that are specific to those securities and embedded through implementation of smart contracts on the blockchain. Initial offering of these derivatives to investors are often referred to as Security Token Offering (STO).
The expected advantages of asset tokenization are enormous. Conventionally, it is costly to handle large amounts of documents relating to the transaction of assets. Furthermore, involving many intermediaries in the entire process (including brokers, custodians, auditors, and investors) heightens the risk of errors and fraud. Asset tokenization, on the other hand, provides a seamless documentation process through smart contract, enhanced system security through cryptography technology and decentralization data storage, and automated compliance through authenticity of user and documents.
More importantly, tokenizing assets can create a new “token economy” through a frictionless transaction cycle from creation, from buying to selling of securities. Tokenized Asset Offering (TAO), Digitized Securities Offering (DSO) or Security Token Offering (STO) in security token format allows access to a broader base of investors globally and therefore higher liquidity. Transactions through smart contracts reduce transaction costs and shorten settlement time. Pre-defined business rules in smart contracts and immutable nature of blockchain provide added transparency and improve corporate governance. Last but not least, the unique nature of tokens allows underlying assets to be traded in a highly divisible way and 24/7 globally. This new way of fractional ownership, with a smaller investment size, and a cost effective model, could bring investment and secondary trading of digitized securities to a new frontier (Diagram 2).
Case Study of STO —
“Wealth Mind HK” is 20+ years company in Asia specializing in the distribution and rental of heavy construction equipment and machinery. Their customers include large multinational construction companies involved in large-scale government infrastructure projects. One of the challenges of their business is to gain access to capital and to finance the purchase of new equipment and machinery to grow their rental business. Traditional methods of financing through bank loans and corporate debts are not effective nor cost efficient enough to support their growth. Coinstreet Partners helped them to structure a fixed-income tokenized debt STO that is secured by equipment title and rental cashflow. STO investors will be entitled to bi-annual coupons at a fixed interest rate (which can choose to be paid by any major fiat currencies or stablecoins), guaranteed redemption of principal with 3 years’ maturity, and possible upside of profit sharing from underlying assets. In addition, token investors can also trade their tokens on licensed STO exchanges and through broker dealers OTC platforms. Since this global, high yield, fully secured STO is capped in circulation, many investors who have missed the initial offering are willing to purchase tokens through secondary markets due to the attractiveness of this investment product.
Conclusion
Asset tokenization is liberalizing the legacy financial system, and is creating a new financial market that is more democratic, efficient, and global. Not only asset tokenization is gaining rapid adoption, it is also already being used to dismantle barriers and make previously unattainable services available to people from all economic backgrounds. Under the current system, many pre-unicorn opportunities are only available to big VC and PE funds with special relationships. In the new system moving forward, similar opportunities can be made available to smaller investors around the world. The vision of financial inclusion can become a reality much quicker in this new token economy.
Coming soon — The Next Frontier of Financial Market(II) — Secondary Market for Digital Assets
About Coinstreet Partners
Coinstreet Partners is a leading decentralized investment banking group and FMT (Finance, Media & Technology) consultancy firm, providing a business eco-system for the new era of digital economy. Coinstreet Partners is building a global business alliance network and eco-system for sourcing and distributing high-quality STO projects, in collaboration with regulated market operators and licensed broker dealers from major financial markets worldwide. Coinstreet Partners is the winner of the “Practitioner High Flyer Award (Outstanding Deal Originator In Asia)” of the “2020 Asia Futurist Leadership Award”, organized by the Association of Family Offices in Asia. More info — www.coinstreet.partners
About Samson Lee
Mr. Samson Lee (or Sam), is a prominent entrepreneur and FinTech executive. He is also a board advisor, independent/non-executive director, public speaker, lecturer, corporate trainer and private investor. He has been a keynote speaker and expert panelist at over 50 international conferences, as well as many regional meetings and corporate events. His vision is to bring wealth inclusion and improve economic inequality in the world by diminishing the boundaries among nations and connecting isolated economies through financial technology and innovation. Linkedin — https://www.linkedin.com/in/samsonlee/