You Can Tokenize Almost Any Asset, But Should You?

Tokenizing assets into digital tokens has become increasingly feasible, yet turning that into profitable returns remains a challenge. Crypto markets' visibility has led businesses to believe that simply tokenizing an asset will attract buyers. However, owning a token tied to a mining asset is distinct from holding Bitcoin or Ether.

Investors must fully comprehend the token's entitlements, project risks, and potential return mechanisms before launching. This conversation has been repeated numerous times with mining companies, commodity producers, fund managers, and private businesses.

The advancement of infrastructure, such as the DTCC processing live transactions using tokenized securities and the SEC approving rule changes for Nasdaq and NYSE to support tokenized shares, suggests a growing acceptance of tokenization. However, these developments primarily pertain to secondary trading and not to the issuance of new securities.

Other markets are progressing at their own pace, with Canada applying existing securities law, the EU relying on MiFID II and MiCA, the UK placing security tokens under the FCA's purview, Hong Kong granting stablecoin issuer licences, and South Korea enacting a security token law.

The essence of tokenizing assets lies in clarifying the legal rights represented by the token, verifying ownership, and establishing issuance and transfer processes. While the technology is advancing, it is crucial to understand that tokenization does not inherently make financing or selling cheaper or easier. Investors still require clarity on what they own and how to enforce their rights.

Moreover, tokenization should follow the groundwork of structuring a sound company, securing clear asset ownership, and engaging securities counsel. The true cost of tokenization depends on the target investors, with known investors potentially reducing legal, audit, and structuring expenses.