Tokenization is one of the many new concepts that have been introduced by blockchain technology. New payment methods are being introduced into today’s financial industry due to tokenization’s ability to secure, digitize, and simplify transactions. However, the benefits of tokenization and the value it brings can be realized by all businesses regardless of their industry.
A token is a digital means to represent a unit of value and this unit can be assigned to anything held valuable, such as digital assets or digital representations of possessions. A token can also represent a share in ownership, a share in a company, etc. That’s why tokenization can be very useful for any business.
Businesses can benefit from tokenization in the following ways:
Better Funding Opportunities: Fundraising is a challenge for businesses, and most startups don’t have the resources necessary to raise funds in an IPO. Crowdfunding as an alternative has its own challenges, and could be ineffective without a proper marketing campaign. On the other hand, offering digital tokens of a company could be a smooth and easy way to raise new capital.
Low-cost Issuance: Tokenization dis-intermediates the issuance process, saving companies valuable time and resources. With a setup fee as low as $40,000 – depending on the complexity of the project, tokenization is a clear winner when compared with all requirements to enter a stock exchange.
Digital Management: Smart contracts enable digitized shareholder registries, automated reporting, and corporate actions.
Fast Execution: By standardizing and automating the issuance and management processes, the time to market is cut to a minimum. The whole setup and launch can be done in as little as 10 weeks from initial assessment.
No Intermediaries: Intermediaries, such as brokers, are not needed at all, so a company could save time, money, and resources. The issuers offer their tokens (digital shares) directly to investors, providing transparent and immutable information.
Fractional Ownership: A company’s assets can be fractionalized without any extra cost. Consequently, a company’s assets are available to a large crowd of small investors, whose support can be an advantage for their business. Additionally, businesses can stipulate a minimum purchase, e.g. 100 or 1,000 tokens or a minimum purchase worth $50, etc.
Transferability: A fully digital infrastructure enables instantaneous and global transfer of asset ownership.
Automation: Many functions can be automated and simplified through the blockchain and smart contracts, cutting out middlemen and manual processes prone to error. With smart contracts, businesses can fully automate processes, such as distributions of dividends, commissions, waterfalls, etc.
Transparency: Blockchain and smart contracts rule out the asymmetry of information that often exists during the actual transfer of ownership of an asset, making the transaction smooth and transparent.
Immutability: Many businesses and institutions use their own databases with different levels of access for different users (e.g. restricted view on data vs. full view). There’s no mechanism to make this data immutable. On the other hand, blockchain technology adds an immense value into the process: Once an investor makes a transaction on a blockchain (e.g. buys the company’s token), this transaction is immutable; nobody can change it or erase its history. This simplifies any auditing, since it is easy to show that the data has not been changed in any way, reducing time and costs.
24/7/365: Blockchain knows nothing about working hours, thus a company’s tokens and assets are available every single second. Such increased liquidity creates great opportunities for investors.
Employee Ownership Possibilities: When tokenizing a business, companies can prepare a certain (perhaps a discounted) volume of these tokens for their employees, offering them a partial or fractional ownership in the company where they work. This motivates them to work harder for what’s best for the company, since the success of the company is their success, as well.
Cost Savings: Tokenization brings in cost savings in many stages of the process (e.g., reduced transaction costs, speed, automation, transferability, transparency, etc.)
Their Own Digital Identity: Tokenization gives a business its own unique digital identity, which means a tremendous advantage over their competitors.
According to Statista data, 46% of companies have already applied asset tokenization as of 2021.
Industries Exploring the Potential of Tokenization:
Tokenization of assets opens up huge opportunities for businesses and allows companies to access global markets. Businesses can tokenize a great number of assets and trade them on the exchange.
In essence, a business' transfer to the blockchain will save money on intermediaries, transactions, and network maintenance, increase the transparency and security of transactions, and reduce time spent by automating processes.
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