Tokenization Process
The diagram provided below outlines the five phases of the tokenization process for Real World Assets (RWAs).
Here's an explanation of each phase:
Phase 1: Deal Structuring
This initial phase involves setting up the legal and operational framework necessary for tokenization:
Issuer: The entity that creates the tokens.
Investment Manager: Manages the investment strategy for the assets being tokenized.
Administrator: Handles administrative tasks and coordination.
Auditor: Ensures compliance with financial and legal standards.
Custodian: Safeguards the physical or digital assets underlying the tokens.
Legal/Tax Advisors: Provide guidance on compliance with legal and tax obligations.
Structure into SPV (e.g., VCC or Trust): The assets are placed into a Special Purpose Vehicle, like a Variable Capital Company (VCC) or a trust, to separate them from the issuer's main business.
Underlying Assets: These are the actual assets (e.g., real estate) being tokenized.
Phase 2: Digitization
In this phase, the assets are converted into digital tokens on a blockchain platform:
Tokenization Platform: The technological platform where tokens are created.
Programmable Actions (Smart Contracts): These are self-executing contracts with the terms of the agreement directly written into lines of code.
Digital Register of Members on Blockchain: A blockchain-based registry that records all token holders.
Phase 3: Primary Market
The tokens are initially offered and distributed to investors:
Primary Distribution: Tokens are sold to investors, typically through private sales or initial coin offerings (ICOs).
Investment Tokens: The actual digital tokens representing ownership or a claim on the underlying assets.
Phase 4: Corporate Actions
This phase involves the management and administration of the tokens post-issuance:
Asset Servicing: Includes the management of underlying assets, ensuring they are maintained and operated efficiently.
Coupon Payments, Dividends, Principal: Handling of financial distributions and repayments to token holders.
Phase 5: Secondary Market Trading
Tokens are traded among investors after the initial sale:
Trading via OTC or Exchanges: Tokens can be traded over-the-counter or on various cryptocurrency exchanges.
Ownership Updates on Digital Register: The blockchain register updates ownership information as tokens are traded.
These phases represent a comprehensive framework for the tokenization of assets, ensuring that the process is compliant, transparent, and efficient from initial structuring through to trading on the secondary market.
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