But what is it?
Tokenization 101
The German Financial Regulator, BAFIN, defines tokenization as "the digitalised representation of an (asset) value including the rights and obligations contained in this value as well as its transferability made possible by this".
A digital programme, a so-called smart contract, is linked to the asset and maps these rights and obligations of the legal contract. These are represented by the tokens.
The digital mapping is usually implemented on the blockchain. In this way, regulated financial instruments such as shares, bonds or funds, but also tangible assets such as real estate can be represented.
What can be Tokenized?
In principle, almost any asset can be tokenized
The decisive factor is usually the legal situation in the jurisdiction of the issuing party and the structuring of the security.
A token is used to represent assets on the blockchain. These can be any type of asset, from artwork, furniture and trees, to traditional financial instruments such as shares.
The process of mapping these assets from the real world is called tokenization. Various types of tokens can be created, including securities.
Security Tokens
A security token is a type of cryptographic token that represents ownership or equity in a particular asset or investment. These tokens are subject to regulatory compliance, as they often represent traditional financial securities like stocks, bonds, or real estate. Security tokens play a crucial role in bridging the gap between traditional finance and the world of blockchain and cryptocurrencies.
Governance Tokens
Governance tokens are a cryptocurrency token that empowers holders with the ability to participate in the decision-making process within a decentralized autonomous organization (DAO) or a blockchain-based governance system. These tokens allow them to influence the direction of the project, propose and vote on protocol upgrades, and make decisions related to the network's governance parameters.
Introducing
The "Kryptowertpapier" Token
Since the adoption of the new Electronic Securities Act 2021, the issuance of Krytpowertpapier-securities is possible. This is a sub-type of electronic securities. With the help of blockchain technology, a tokenized security is thus permitted for the first time in Europe, which is considered a fully regulated security, not only in terms of prospectus law but also from a civil law perspective.
Increased Compliance
The Kryptowertpapier Token is a fully regulated financial product
Increased Security
It offers high investor protection through a regulated custodian and registrar
A New Financial Product
it significantly expands the customer group for the tokenization market (complete with ISIN number)
4 Easy Steps
Tokenization can be summarised in four sequential steps: Pre-emission, Emission, Post-emission, and Trade.
1. Pre-emission involves the initial drafting and structuring of the prospectus. During this phase, a regulatory framework is established to ensure the issuance is legally secured and compliant with relevant regulations.
2. The second step is the Emission, where the predefined assets are created and issued. This is the core of the tokenization process, and it involves linking the assets to a smart contract on the blockchain.
3. Following the issuance, the Post-emission phase entails custody and investor management. This step involves ensuring the safekeeping of the assets and effective management of investor-related activities.
4. The final step is Trade, which involves transitioning the tokenized assets to the secondary market. This phase primarily focuses on trading activities to facilitate liquidity and effective market participation.
The Main Components of Regulated Tokenization
Whitelisted Wallets
Whitelisted wallets refer to a list of select crypto wallet addresses that have been pre-approved by project creators or platforms to gain certain privileges and benefits. These whitelisted wallets are granted special access to participate in specific events or token minting before they are made available to the general public.
The Custodian
A custodian bank is a financial institution that holds customers' securities for safekeeping to prevent them from being stolen or lost. The custodian may hold stocks, bonds, or other assets in electronic or physical form on behalf of its customers.
The Registrar
A registrar is an institution, often a bank or trust company, responsible for keeping records of bondholders and shareholders after an issuer offers securities to the public. Registrars ensure shares outstanding don’t outpace shares authorized.
AML/KYC
Know Your Client (KYC) is a standard in the investment industry that ensures advisors can verify a client's identity and know their client's investment knowledge and financial profile. Anti money laundering (AML) refers to the web of laws, regulations, and procedures aimed at uncovering efforts to disguise illicit funds as legitimate income.
The Smart Contract
Smart contracts are simply programs stored on a blockchain that run when predetermined conditions are met. They typically are used to automate the execution of an agreement so that all participants can be immediately certain of the outcome, without any intermediary’s involvement or time loss. They can also automate a workflow, triggering the next action when conditions are met.
The Bulletin Board (Marketplace)
A digital bulletin board for digital securities is a place where qualified parties can identify each other, negotiate directly peer-to-peer, and once terms have been agreed, execute a trade of digital securities on their own using a smart contract that clears and settles the transaction on a wallet-to-wallet basis, directly on-chain.
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