“…the next generation for markets, the next generation for securities, will be tokenization of securities.”
Larry Fink, CEO BlackRock
Digitalization is the conversion of documents and information into electronic format stored in an unalterable, auditable, updatable format on a blockchain (secure “file cabinet”).
Tokens are digital “shares” tradeable on private or public exchanges – primary offerings or secondary trading.
The Tokens are held on behalf of the investor by a qualified/regulated institutional custodian.
All funds are held/distributed by a regulated financial institution in accordance with the investment terms.
Together they are the 21st century version of stocks, bonds, membership/partnership shares, and brokerage/investment accounts.
Tokens incorporate “smart contracts” (snippets of code) that automate an offering and associated workflow such as transfers of shares, distributions, capital table updates, etc. – with a full audit trail.
Smart Contracts are capable of handling complex structures including senior loans, A/B structures, mezzanine loans, preferred equity, GP, LPs, Members, etc.
Also, non-financial assets such as timeshares or club memberships.
Benefits include:
Fractionalization (division of large investments into smaller, individual size units) allows access to a larger pool of small investors.
Access to Investors around the Globe via the Internet.
Automated Accredited Investor vetting, KYI & AML reviews.
Automated Tax and Accounting Reports.
The software allows for potential integration of many legacy and third-party software such as property management and investor relationship programs.
Trusted data improves asset value and liquidity while reducing costs and timing of asset valuations, due diligence, and performance/investor reports.
