In the second part of the session on tokenization from our Business Angels Talks series, we delved into various use cases to illustrate the concept of tokens and how companies are utilizing tokenization to secure funding and enhance liquidity for their investments.
Yael Oaknín, the founder and CEO of Token City, guided us through the session. With a technical background as an engineer, extensive experience as a consultant, and a successful track record in tech startups, Yael brought a wealth of knowledge and expertise to the field of tokenization. Token City specializes in providing companies with the necessary technical and regulatory infrastructure for token issuance, asset management, and trading.
Tokenization: Exploring Real-World Use Cases
Yael presented real-life use cases, featuring Token City's clients. These examples demonstrated how tokenization is being employed to unlock new funding opportunities and provide greater liquidity for investments. It's important to note that all the use cases presented were based on actual clients and their experiences with tokenization.
Yael started by reiterating the fundamental concept of tokens as digital representations of economic rights, enabled by blockchain technology. Tokens can be fractionalized and traded, offering increased liquidity and flexibility in the market.
From real estate and art to venture capital and intellectual property rights, the applications of tokenization are vast and far-reaching. We discovered the endless possibilities and potential benefits this technology brings to businesses across industries.
Beyond cryptocurrencies, we have a vast array of tokens that represent different values, assets, utility rights, or economic rights. These tokens can be created using smart contracts, which allow for the coding of value and functionality. Some common categories include utility tokens, which grant the right to use a particular service, NFTs (non-fungible tokens) used in unique assets like art, and digital assets that represent real-world assets like shares, loans, or other economic rights.
The versatility of tokenization becomes evident when we explore the multitude of assets that can be tokenized. A few compelling use cases:
- Real Estate Tokenization: Through tokenization, real estate assets can be divided into fractional ownership units. This enables greater accessibility and liquidity in the real estate market, as investors can now buy and trade smaller portions of properties.
- Art and Collectibles: Tokenization allows for the creation of unique digital assets, such as NFTs, representing artwork or collectibles. This opens up new avenues for artists to monetize their creations and enables easier ownership transfer and trading in the art market.
- Venture Capital and Angel Investing: Tokenization provides an alternative means for companies to raise funds. Startups can issue security tokens that represent shares in their company, allowing investors to participate in the potential future success of the venture.
- Supply Chain and Trade Finance: Tokenizing supply chain processes can streamline transactions, enhance transparency, and simplify financing options. By tokenizing invoices or trade receivables, businesses can access liquidity faster, unlocking capital for growth.
- Intellectual Property Rights: Tokenization enables the fractional ownership and licensing of intellectual property rights. Creators can tokenize their patents, copyrights, or trademarks, granting others the right to use or invest in these assets.
These examples merely scratch the surface of what can be achieved through tokenization. The technology opens up endless possibilities across industries, including finance, real estate, art, and more. By leveraging blockchain's capabilities, companies can explore innovative ways to secure funding and increase liquidity.
Regulation for Tokens: A Global Perspective
When it comes to discussing regulation for tokens representing participation in investment vehicles like angel funds, the question arises: Is it globally based or specific to Europe? The landscape of token regulation is evolving among countries, with each nation developing its own set of rules. In Europe, there has been the development of a regulation that encompasses the entire region. However, some countries are leading the way in terms of advancement, from my perspective. Switzerland and Singapore, for instance, have established their own regulations for operating token infrastructure, making them pioneers in the field. Europe, as a whole, is also demonstrating innovation in this area. The United States, while often at the forefront of technological advancements, may have regulations that are less advanced compared to Switzerland. It's worth noting that my expertise is not in international law, so this is solely my observation.
The Rise of Specific Jurisdictions
What we observe is that individuals and companies are gravitating towards specific locations that offer favorable regulations for tokenized assets. Countries like Switzerland, Wyoming (in the United States), and now Spain are attracting attention. Moreover, smaller jurisdictions have also emerged, developing crypto-friendly laws tailored to the needs of investors. However, investment also requires a sense of security for investors to feel comfortable with their financial decisions. Changing regulations within a short span of time can disrupt investments and erode trust. Investors seek stability and predictability, ensuring that their investments will not be undermined shortly after entering the market.
The Key Considerations for Angel Investors
When investing in tokenized assets, angel investors should be aware of certain factors and exercise caution. By paying attention to these key considerations, they can safeguard their investments and make informed decisions.
- Understand the Underlying Asset: Tokens are digital representations that can hold value or no value at all. It is crucial to comprehend the nature of the underlying asset the token represents. Investing in a token that represents a share of a poorly performing company would be unwise.
- Verify the Token-Asset Relationship: When purchasing a token, investors must ensure that they are indeed acquiring the underlying asset. The connection between the token and the underlying asset should be legally guaranteed. This provides the necessary reassurance that the token truly represents the economic rights it claims to embody. For example, the Spanish law mentioned earlier allows the representation of company shares with legal coverage, ensuring accurate representation in front of a judge or notary.
- Secure Transfer of Rights: A well-designed tokenization process ensures that when the token is transferred, the associated rights are also transferred completely. Investors need assurance that their transfer of tokens corresponds to the complete transfer of the underlying rights, rather than a partial transfer.
- Custody and Security: If investors choose to hold their tokens in a wallet, it is essential to safeguard their private keys to prevent unauthorized access. When utilizing a custody service, selecting a trustworthy and reliable provider is crucial.
By adhering to these precautions and being well-informed about the investment landscape, angel investors can navigate the tokenized asset market with greater confidence. While tokenization offers numerous advantages, it is critical to evaluate the underlying asset, verify the token-asset relationship, ensure the secure transfer of rights, and prioritize custody and security.
In conclusion, the regulation of tokens is evolving globally, with each country developing its own framework. Certain countries like Switzerland and Singapore have made notable progress in creating regulations for token infrastructure. Angel investors should be cautious and consider key factors when investing in tokenized assets, such as understanding the underlying asset, verifying the token-asset relationship, ensuring secure transfer of rights, and prioritizing custody and security. These considerations contribute to a safer investment environment, instilling confidence and protecting investors' interests in the rapidly expanding world of tokenized assets.
Q&A Session: Exploring the Benefits of Tokenization
In the Q&A session that followed the presentation, participants had the opportunity to gain deeper insights into the advantages of tokenizing assets. Here are some of the key questions and Yael's responses:
Q: What benefits are there for investors who tokenize their assets versus those who don't?
Yael: Tokenization offers numerous benefits for investors. Firstly, it provides a streamlined and efficient way to invest in assets without unnecessary bureaucracy. Tokenized assets can be easily accessed and traded, allowing investors to enter and exit investments quickly. Additionally, tokenization unlocks opportunities for fractional ownership, enabling small investors to participate in larger investment opportunities that would otherwise be inaccessible to them.
Q: Why should I tokenize my investment in startups?
Yael: Tokenizing investments in startups offers several advantages. For instance, it provides liquidity for investors in small companies. Traditionally, selling shares in a small company can be challenging due to limited liquidity and a lack of marketplaces. Tokenization creates private markets where investors can easily trade their tokens, increasing liquidity and facilitating the buying and selling process. Furthermore, tokenizing startup investments can attract a broader range of investors by offering them the opportunity to participate in the company's growth and potential success.
Q: Is tokenization of assets different for small versus large investors?
Yael: The process of tokenization itself remains the same regardless of the investor's size. However, tokenization is particularly convenient for small investors as it allows them to access and invest in opportunities that would typically require a significant investment. Tokenization democratizes access to investment opportunities, enabling small investors to participate in projects that were previously exclusive to larger players. For large investors, tokenization provides increased liquidity, allowing them to easily sell portions of their investment when desired.
Q: When a person sells tokens they invested in, where does the gain appear?
Yael: The method of receiving gains from token sales can vary depending on how the investors and issuers have structured the process. It can be done in multiple ways. Investors may receive payments in stable coins directly to their wallets or choose to have the funds deposited into their bank accounts. The tokens are transferred from the investor's wallet to the issuer's wallet or may be burned, depending on the defined protocol. The specific payment methods can include cryptocurrencies, stable coins, or traditional fiat currencies.
Q: It is crucial to understand how the process works before investing. Where can investors find this information?
Yael: Typically, the operational procedures and details of tokenized investments are outlined in a white paper. The white paper provides comprehensive information about the project, including the tokenization process, investment conditions, and payment mechanisms. It is essential for investors to carefully review the white paper to gain a clear understanding of how the investment and tokenization process functions.
As the Q&A session concluded, participants gained a better understanding of the benefits that tokenization brings to investors of all sizes. From increased liquidity and accessibility to streamlined transactions and marketplaces, tokenization continues to revolutionize the investment landscape, providing new opportunities for investors worldwide.
About Token City
Token City stands at the forefront of the tokenization revolution, offering a comprehensive suite of technical and regulatory infrastructure for companies to issue, manage, and trade their tokens. Led by Yael Oaknín, an experienced entrepreneur with a background in engineering and a successful track record in crowdfunding, Token City is driving innovation in the field of tokenization.
One notable supporter of Token City is COREangels Madrid, our angel fund based in Madrid. COREangels Madrid recognizes the potential and transformative power of tokenization, which led them to invest in Token City. As an angel fund, COREangels Madrid identifies and supports promising startups, and their partnership with Token City highlights the significance and potential of this groundbreaking venture.
COREangels Madrid's investment in Token City demonstrates their confidence in the value and potential of tokenization. By aligning with Token City, COREangels Madrid group showcases their commitment to staying ahead of the curve and embracing disruptive technologies that can reshape the investment landscape. Through their collaboration, Token City and COREangels Madrid are paving the way for a new era of investment opportunities that are more accessible, efficient, and liquid.
The work between Token City and COREangels Madrid not only illustrates the credibility and expertise of Token City but also signifies the growing acceptance and adoption of tokenization by prominent investment entities. This collective effort reinforces the belief that tokenization holds immense promise for investors, startups, and the overall investment ecosystem.
As we delve further into the realm of tokenization, it becomes clear that this technology has the potential to revolutionize traditional investment practices. It empowers investors, both large and small, with increased liquidity, accessibility to new investment opportunities, and streamlined processes. Token City and COREangels Madrid exemplify the collaborative spirit needed to harness the full potential of tokenization and propel the investment landscape into a new era of efficiency, transparency, and growth.
With Token City's innovative solutions and COREangels Madrid's vision, we can expect to witness further advancements and use cases in the world of tokenization. The journey has just begun, and the possibilities are boundless. Stay tuned as they continue to reshape the investment landscape, unlocking new opportunities for investors and entrepreneurs alike.
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