Tokenization is defined as the act of technically and legally representing the ownership of an asset or security as a token on blockchain. DigiShares is one of the leaders in this space, based in the Nordics but with a global outview and a focus on delivering high quality white label solutions for the issuance and corporate management of tokenized securities.
The tokenization space is under swift development. Many technology providers have received big investments and the market has recently been predicted to reach $1.5 trillion in 2024 (and this is just for Europe!) (https://dailyhodl.com/2020/03/05/tokenization-in-europe-market-size-to-reach-1-5-trillion-in-2024/). Also, the security token market size has been predicted to grow with 59% CAGR until 2030 (https://www.finyear.com/attachment/1338789/) so there will be enough business for all of us.
What’s driving the market currently? We see a global trend to apply tokenization to the real estate industry as the initial driver. Global real estate is a more valuable asset class than all stocks, shares and securitized debt combined – with a 2017 estimate of $228 trillion. Furthermore, it is a homogenous market that is highly illiquid and plagued by inefficient, cumbersome, paper-based processes for issuance, transfer and trading.
So it is ripe for digitization, securitization and now, tokenization. For this reason, DigiShares has focused its marketing, technology and business development efforts on real estate. See our white paper on real estate tokenization best practices here: https://digishares.io/real-estate-tokenization
DigiShares is actively seeking partnerships with real estate developers interested in white labeling our platform in their respective countries.
Can tokenization provide value with no operational security token exchanges? Indeed, many of the necessary pieces of the puzzle are not yet in place to fully deliver on the value proposition promised by the tokenization industry. We claim that there are still value to be gained from tokenization, such as:
- increased ability to digitize and automate processes related to issuance, transfer and trading,
- increased ability to fractionalize securities to smaller sizes and extend the group of potential target investors,
- increased liquidity through DigiShares internal marketplace for trading within a single project or fund,
- the marketing and business advantage as a first-mover in a new market,
- the increased ease of approaching and attracting international investors (US, Asia, Europe, Latin America),
- and finally being future-proof and prepared to benefit from future security token exchanges and liquidity providers.
How are STOs actually carried out today? Across Europe we have seen most STOs occur in either Germany, Switzerland and the UK. Other much published destinations as Liechtenstein, Estonia, Malta and Gibraltar have actually yet to see their first successful projects. How can STOs occur in Germany where the legal status of tokenized shares is not yet clarified? Easy, legislation is sidetracked by issuing bonds instead of shares. The regulation concerning bonds is less strict than shares and it is easier to define a method for tokenization of bonds that can be approved by regulators. Furthermore, the bonds can be designed to have similar properties as shares such that interest or rent income can be distributed to bond holders on a quarterly basis and such that any value increase in the property can also be distributed to bond holders.
The DigiShares technology supports both bonds and shares, and indeed any other type of security (debt instruments, revenue sharing rights, profit sharing rights, voting rights, etc.).
Due to the corona virus outbreak, we are working from home and will have extra time to prepare future STO projects and consult on the opportunities in the tokenization industry. Feel free to contact our business development department for an initial consultation.