Gabriel Sadoun, U.S. Business Development for DigiShares, joined Keith Black, Managing Director of RIA Channel, to discuss tokenizing real-world assets (RWA) to trade on blockchain platforms.
Shares in a legal entity can be tokenized as securities to enable trading on a regulated alternative trading system (ATS). Ownership of the shares is recorded on a distributed digital ledger secured on the Ethereum blockchain. Contrary to cryptocurrencies, some of which regulators have challenged as unregistered securities, tokenized securities are designed to comply with all securities regulations.
Tokenized assets allow private market transactions to be settled quickly and inexpensively. The process creates a secondary trading venue for previously highly illiquid assets. For example, a real estate property can be securitized with tokenized shares sold to thousands of investors with income distributed to the wallet of each investor. Each investor will be free to seek liquidity for their holdings at the time of their choosing.
There are three steps to tokenizing an asset. First, the business case must be made for which asset or assets will be tokenized. Second, a legal entity such as a special purpose vehicle (SPV) is established in a jurisdiction such as Delaware or Wyoming, and the decision is made to raise capital under a private placement exemption from the SEC, such as Rule 506(c) of Regulation D. Third, the technology platform is used to create security tokens and onboard investors in a compliant way, including know-your-customer (KYC) procedures. DigiShares offers a white-label technology platform to facilitate the securitization and trading of tokenized securities.
Resources:
Real Estate Tokenization Reports
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