# Tokenization Process

The diagram provided below outlines the five phases of the tokenization process for Real World Assets (RWAs). 

<figure><img src="https://2127104040-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FfnG1Gd1qxAgp7kO1kMvd%2Fuploads%2FTCrSaLwUtcnRFZYvtAmr%2Fimage.png?alt=media&#x26;token=9d8029f9-d922-46fe-bd38-87e3f48711cf" alt=""><figcaption><p>Asset Tokenization Process<br>Source: <a href="https://assets.kpmg.com/content/dam/kpmg/sg/pdf/2024/02/kpmg-sfa-the-asset-tokenization-c-suite-playbook.pdf">https://assets.kpmg.com/content/dam/kpmg/sg/pdf/2024/02/kpmg-sfa-the-asset-tokenization-c-suite-playbook.pdf</a></p></figcaption></figure>

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.