The increasing fraud instances and lack of compliance were the two major causes that led to the steep decline of initial coin offerings (ICOs) in the past two years.
This has forced ICO businesses to offer real value to investors. Presently, asset tokenization is one of the most useful ways that can be used by businesses to bring credibility, transparency and compliance in their token offerings.
Wondering about Asset tokenization?
Asset Tokenization, in the easiest terms, refers to the process of transforming your real-world physical assets (e.g., stocks, bonds, real estate, etc.) into digital tokens secured on the blockchain network.
In case of businesses, tokenizing their company assets like shares, ownership, projects, etc. (typically issuing a security token) allows them to gain investor trust, increase overall transparency, and compliance in their fundraising or STO event.
The investors holding security tokens are allowed to have a piece of shares in company stocks, ownership, projects, profits etc. by the fundraising company.
Benefits of Tokenization
Tokenizing assets and offering security tokens to investors have multiple benefits like:
- Each security token carries an intrinsic value in itself (share of ownership in a company, dividend or share of net income etc.)
- Tokenized assets also provide high liquidity for investors.
- Tokenizing assets also increases the transparency of fundraising events like STOs, IEOs etc.
Tokenization Process: DCI Ecosystem
Tokenization is a highly unique and innovative function of DCI Ecosystem, a cross-asset investment ecosystem, that allows the investors to transform their physical assets into digital form, carrying an immediate marketing function.
DCI understands the investors face a variety of issues such as poor liquidity, high-interest rates, etc. while trading their ostensibly illiquid physical assets (e.g. real estate, gold, etc.).Hence, it allows investors to digitize their physical assets like stocks, bonds, etc.
for instant and hassle-free trading. That’s not all. DCI also allows the companies or startup businesses to raise funds for their existing or early-stage projects via tokenizing them for fundraising.
The investors on the DCI ecosystem can purchase and sell the asset-backed tokens whenever required. However,They must hold the token for a minimum threshold period per the initial token agreement.
On the other side, the companies that are looking to raise funds are allowed to generate Digitized Project Backed Token (DBPT), Project Investment Tranches Token etc. for raising capital funds from investors.
Digitized Project backed tokens will allow the companies to raise funds for their existing projects without increasing the ownership in the company. Based on the project funding needs and annual revenue, the loan will be provided to the company.
The loan will continue until the payment is paid back as per the initial agreement (e.g. 1.5 to 3 times the initial loan amount). The smaller companies, who are looking for liquid capital for fulfilling their project funding needs, will especially benefit from this.
Tokenization Feature of DCI is a ‘Win-Win’ Condition for Both the Investors and Fundraising Companies
Tokenization Feature of DCI is a ‘Win-Win’ Condition for Both the Investors and Fundraising Companies:
Similarly,Project investment tranches token will allow the companies to raise funds from investors upon meets of the specific contractual agreements. If the contract terms are not met, the payment will not be released. DCI will ensure that companies would receive payments on time once they meet the contract criteria.
- For large VC or angel investors, tokenized assets will offer them high liquidity. Unlike regular investments where their money gets bound to a long-term investment with uncertainty about the future.
- Both emerging and existing businesses can raise funds for their early-stage and existing projects via tokenizing company assets (typically issuing a security token to investors via STO).
- In the case of mass affluent investors, they are allowed to hold fractional ownership of assets, e.g. real estate, which was impossible before