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Advantages Of Tokenizing Investment Assets

Tokenization refers to the process where real assets or investment goods, known as Real World Assets (RWA), are represented in the form of digital tokens on a blockchain. These tokens represent ownership of or rights to these assets and can be easily traded, transferred, or shared, potentially increasing liquidity, accessibility, and transparency.

Increased Liquidity

Tokenization allows assets to be divided into smaller, more affordable units, making it easier for a broader investor base to participate. This can increase the liquidity of investment projects, as trading crypto tokens on secondary markets is much more accessible than traditional investment markets.

Global Pool of Investors

Blockchain technology enables cross-border transactions without the need for intermediaries, opening up opportunities for worldwide investments. This can significantly expand the pool of potential investors beyond the boundaries of local or national markets.

Increased Attractiveness for Investors

Tokenization enables the creation of innovative financing structures, for example by combining fixed-interest loans with performance-based returns. This flexibility allows operators to increase the attractiveness of their projects for investors and adapt them to their specific project characteristics.

Higher Flexibility

Tokenization allows capital to be raised in smaller units. Project developers can raise exactly the amount they need. Capital raising can also be staggered over time, with funding goals quickly adjusted to changing conditions.

Lower Costs

The use of blockchain technology can significantly reduce the financing costs of investment projects. This applies to both direct costs such as brokerage or closing fees as well as legal expenses and regular costs for transactions and administration.

Risk Minimization

Financing through tokenization reduces dependence on restrictive credit terms and covenants and reduces liability risk. Flexible exit options allow for faster partial liquidations. Additionally, it's easier to react to negative impacts of project delays.

This is the way we do it

Process Of Tokenizing Investment Assets

  • Inventory and Requirements Analysis

    Before taking on a tokenization project, we assume that the investment project is already fully ready for implementation except for the financing, i.e., all technical, legal, and market-specific aspects of the project have been reviewed by the operator and prepared for prompt realization. Our inventory and requirements analysis therefore relates exclusively to the business model that is intended to enable the financing of the project through the issuance of suitable blockchain tokens.

    For our inventory, we collect data from you on the following aspects and discuss them during our kick-off meeting:

    1. Project and Company Data
      • Company structure
      • Financing needs
      • Revenue model
    2. Planned Financing Structure
      • Fixed and variable return claims
      • Investment staging
      • Target investor groups
    3. Risk Assessment and Exit
      • General project risks
      • Risk management for token holders
      • Exit strategy and long-term planning

  • Project and Token Design

    The tokenization of investment assets means that crypto tokens are sold to investors as part of a token issuance, who in return receive a claim to returns generated based on the tokenized investment assets. The issued "asset tokens" represent this return claim, which is tied to the token itself and not to the buyer as a person.

    Returns for token holders can consist of three components:

    • Fixed returns (coupon)
    • Variable returns that depend on project revenues, e.g., proportional to achieved rental profits
    • Share in liquidation proceeds in case of a sale of the object

    These return components can be combined in consultation with the project operator to create optimal incentives for investors that fit the specific project. According to this return model agreed with the project operator, the tokenomics of the asset token are designed (token design).

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    The central result of the token design is the clear definition of the functionalities and authorizations that should be linked to asset tokens.

    The central result of the business planning in the form of the so-called whitepaper is the description of the entire project course, including the servicing of all investor claims and all possible exit or liquidation strategies. If trading of the issued tokens on the secondary market is part of the business model, a concrete idea of trading channels should already be developed at this point.

  • Organizational Design

    Mapping claims to returns generated through the use or sale of investment assets onto crypto tokens requires a well-thought-out structure to minimize legal and financial risks and protect the interests of all parties involved. Therefore, a Special Purpose Vehicle (SPV) is needed to carry out a tokenization project, which acts as the issuer of the asset tokens.

    The SPV should be established specifically for the tokenization project to hold and manage the investment assets and associated financial transactions. This has the advantage of isolating the risks from the main business of the project sponsor and thereby creating a clearly defined legal structure. Therefore, the SPV is usually established as a limited liability company. Depending on the type of investment project, a business license may also be required.

    To give a tokenization project the necessary legal certainty, it is advisable to involve a law firm qualified in this area. BlockEstate can, if desired, arrange such a law firm and moderate the coordination between the law firm and the operator or token issuer.

    Legal and Regulatory Compliance

    Especially in a relatively new business field, it is important to ensure that the business model and financing concept are in line with the regulatory requirements of the responsible supervisory authorities. This can, for example, concern information obligations towards investors or required approvals. BlockEstate can assist in preparing necessary approval documents, prospectuses, and documentation to comply with the regulatory requirements of the token issuance. However, BlockEstate cannot and may not offer legal advice in the sense of the law.

    BlockEstate always acts as a service provider for the client's SPV and is never itself an issuer, custodian, or seller of tokens.

  • Token Issuance

    Token issuance can be done in various ways, which can also run in parallel:

    • Security Token Offering (STO) or ICO (Initial Coin Offering) in the case of utility tokens via a dedicated website
    • Initial Exchange Offering (IEO) via existing centralized platforms (Launchpads, Exchanges - CEX)
    • Initial Liquidity Offering (ILO) or Initial Decentralized Exchange Offering (IDO) via existing decentralized platforms (Launchpads, Decentralized Exchanges - DEX)

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    Issuance via a dedicated project website offers the advantage that the entire issuance process remains under full control of the SPV and no external platform risks are taken. However, this variant requires a larger initial effort for creating the website. The use of external platforms such as exchanges or launchpads requires a kind of application of the project to the respective platform operator and involves external fees that depend on the chosen platform. On the other hand, this type of issuance can often be realized faster than independent STOs or ICOs.

    Attention! As a general rule and in most jurisdictions, an issuance of asset tokens with return claims for investors will be classified as security tokens by the responsible regulatory authorities. This should be considered when selecting suitable platforms.

    Depending on the specific project requirements, a staged token issuance may be sensible. In this case, different issuance stages are defined, for example, for investors who want to enter the project at an early stage with higher risk and greater return opportunities, and more security-conscious investors who want to invest at a later time with less risk and therefore lower profit expectations.

  • Progress Documentation and Yield Distribution

    Generally, an investment project of this type can be divided into four project phases:

    1. Token issuance (acquisition of the investment sum)
    2. Project development e.g. purchase, construction, renovation etc.
    3. Use of the objects with regular income
    4. Liquidation phase (sale of the objects)
    The rights and obligations of investors and project operators are defined in the form of transparent rules, which are coded in a so-called smart contract. This is also responsible for the interactions between the project participants, for example for the value of tokens during the issuance phase or for the payout of returns.

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    Investors can view the current project progress of investment projects in which they are involved in a dashboard. In addition to the most important token key figures such as liquidity, token price, returns and value forecasts, documentation on the development progress, relevant market analyses or similar can also be stored here. For development projects, e.g. the construction of a property or production facility, a well-founded and regularly updated record of project progress is a good means of strengthening investor confidence and increasing interest in the secondary market. Even in the issuance phase, good project documentation can contribute to the success of the project.

    Upon request, BlockEstate can arrange suitable providers for these documentation tasks, e.g. for

    • Video documentation via drone flyover
    • Image documentation through visual on-site inspection
    • Electronic processing of existing materials, such as construction plans, etc.

  • Secondary Market and Project Conclusion

    The simplest way for investors to liquidate their stake in a tokenized investment asset is to sell the tokens on the secondary market. This is one of the most significant differences from traditional forms of investment, as it provides much faster and more flexible options for investors. Asset tokens are usually issued in the form of ERC20 tokens or NFTs. Depending on the token format, different trading platforms are available for the secondary market.

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    Listing tokens on trading platforms involves different levels of effort and specific requirements depending on the platform. Generally, such a listing cannot be guaranteed. Ideally, the secondary market strategy was already developed as part of the project design (see above) and is implemented according to these specifications.

    Project Conclusion Options for the Operator

    1. Token Buyback:
      The project operator can implement a strategy where they buy back the issued tokens after project completion or after reaching certain milestones to regain full control over the project.
    2. Token Swap:
      Upon successful project completion, the operator can offer a token swap where the original asset tokens are exchanged for tokens of a new project at special conditions. This can promote long-term investor loyalty to the operator.
    3. Restructuring of Token Properties:
      If the existing token design doesn't already provide for this, the operator can change the properties of the asset tokens to give them new functionalities that offer investors other benefits.

    Attention! Depending on the type of project, it may also make sense not to provide for a conclusion of the project. In this case, the issued tokens have an unlimited term and can only be exchanged on the secondary market. An exit strategy for the case of sale or other unplanned scenarios is also important in these cases.

Attractiveness means success

Flexible Yield Models For Investors

Unlike conventional forms of financing, token-based financing can also include profit- and value-dependent yield forms for investors. This can be a significant incentive for investors and also includes the potential for an increase in the value of the tokens even before an actual sale of the linked object. This can maintain and stimulate long-term buying interest in the secondary market, which also has positive effects on the liquidity and stability of the issued tokens.

The prerequisite for this is that each token is not only assigned a fixed nominal value in the amount of the invested capital, but also a percentage share in the total value of the linked asset. In this way, the smart contract can correctly distribute profit- and value-dependent returns to the token holders.

Fixed Yield

a fixed

Interest

on the invested token value

A fixed interest rate can be important in the initial project phases, e.g., during construction or renovation work, or if the acquisition of the object still needs to be carried out after the token issuance. This basic yield can make the token attractive to investors right from the start of the project.

Performance Yield

a regular share of the

Profit

that is generated

A performance-based yield can be realized, for example, by giving the token holder the right to regularly participate in the generated profit, usually through rental income. After a monthly profit calculation, for instance, an agreed portion of the profit is distributed to the token holders via smart contract.

Asset-Linked Returns

a participation in the real

Value

of the property

Participation in the real value of the Real World Asset can be realized, for example, by giving token holders a proportional share in the sales proceeds in case of a sale. This can be implemented by buying back tokens after the sale of the asset or by distributing the sales proceeds to the token holders via smart contract.

The dual token DeFi protocol for real world assets

TwinX

TwinX is BlockEstate's innovative DeFi investment model based on the tokenization of real world assets (RWA). The model uses two token types - the Asset Token (AT) and the Yield Token (RT) - to enable investors to participate in projects backed by real assets. This structure allows for efficient distribution of returns from Real World Assets, facilitates token trading, and gives investors more control and flexibility.

TwinX leverages the unique opportunities of the DeFi market with a combination of stable and speculative components. It offers investors the opportunity to participate in the value and success of real investment assets while enjoying the benefits of DeFi's flexibility and liquidity.

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The TwinX ecosystem utilizes the typical dynamics of Decentralized Finance (DeFi) by combining the freedom and flexibility of the market with the security and solidity of real assets. The free trading of AT and RT on decentralized (DEX) and centralized (CEX) exchanges offers investors significant speculative opportunities. While the Asset Token (AT) functions as a more stable store of value mechanism linked to the underlying real estate project, the Yield Token (RT) provides room for greater volatility and speculation.

Learn more about TwinX