How to Tokenize Assets and Businesses? Legal Aspects

Asset or business tokenization is the process of creating a digital unit of account (token) that is tied to a specific object. This technology allows tokens to represent real estate, corporate rights, or other property, making assets more accessible and easier to manage.

While tokenization has various definitions and purposes, this publication focuses on the legal aspects of tokenizing assets and businesses to attract investment and serve other financial objectives.

What is Asset and Business Tokenization?

Tokenization appears to be a natural evolution of electronic registries for real estate and businesses, augmented by blockchain technology.

Tokens act as a form of "digital securities," allowing assets to be fractionalized and managed on digital platforms. This analogy to securities is critical to understanding the legal framework for tokenization.

Key Objectives of Tokenization

1. Attracting Investments: Tokens can be sold like securities in crypto markets, driving new investments into projects.

2. Increasing Liquidity: Tokenization enables secondary market trading, enhancing project valuation.

3. Team Motivation: Tokens can serve as incentives, such as bonuses or prizes, for employees and partners.

4. Internal Currency: Tokens can function as local currency for games, enterprises, or other ecosystems.

5. Optimizing Processes: Simplifying asset management and enabling innovative financial mechanisms.

Types of Tokens

1. Asset-Referenced Tokens: These are tied to specific assets (real estate, company profits, etc.) and resemble digital securities.

2. Utility Tokens: These grant access to services, bonuses, or subscriptions without being linked to specific assets.

3. NFTs (Non-Fungible Tokens): Used for unique assets, such as art, licenses, or event tickets.

What Can Be Tokenized?

Tokenization applies to:

• Physical Assets: Real estate, equipment, and inventory.

• Corporate Rights: Shares and business stakes.

• Intangible Assets: Intellectual property, brand value, and profit rights.

• Services: Premium features or exclusive offers.

• Business Processes: Complex projects or unique business models.

Legal Framework for Tokenization

The regulation of tokenization varies across jurisdictions. In many cases, asset tokens are treated as securities or financial instruments. Key legal considerations include:

1. Legal entity registration of the issuer.

2. Licensing (e.g., SEC  in the U.S., BaFin in Germany).

3. Asset-backed guarantees (audits and valuations).

4. Compliance with KYC/AML requirements.

5. Comprehensive documentation (e.g., White Paper, Marketing Documentation, contracts, security policies, policies of various types).

The issuance of utility tokens or NFTs often involves fewer regulatory hurdles.

Tokenization Across Jurisdictions

Countries with favorable frameworks for tokenization include:

• USA: Regulated by the SEC; security tokens require registration or exemptions.

• European Union: Tokens classified under MiFID II or MiCa.

• Switzerland: FINMA’s flexible rules foster a "Crypto Valley" ecosystem in Zug.

• Estonia: Quick registration and licensing through the e-Residency program.

• Singapore: Simplified licensing for FinTech companies by MAS.

• UAE: Free trade zones in Dubai and Abu Dhabi support crypto innovation.

Explore specific examples like Bitbond in Germany, BrickMark in Switzerland, or Funderbeam in Estonia to see tokenization in action.

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