Complete Overview of Asset Tokenization
ScienceSoft applies 33-year experience in IT and proven expertise in blockchain development to help companies in 30+industries tokenize their assets.
Tokenized Assets: the Essence
Tokenized assets are blockchain-based tokens that represent the ownership over particular tangible and intangible assets.
- Capabilities of tokenized assets: Allowing for secure and transparent transfer of asset ownership, fractionalized ownership of assets to increase their liquidity and reduce investment barriers, fast and cost-effective asset trading with no intermediary services.
- Steps to tokenize assets: Selecting an asset to tokenize, creating a tokenomics model, choosing a blockchain platform for asset tokenization, developing smart contracts, crypto wallet integration, token launch for trading on primary and secondary markets.
- Cost of asset tokenization: $30,000 – $100,000+.
- Average timeframes for asset tokenization: 3-6 months.
Fractional asset ownership
A digital token can be created for a user-defined portion of an asset. This introduces the capability for shared ownership of an asset and partial asset trading.
Peer-to-peer asset trading
The ownership of tokenized assets can be transferred directly between asset owners and investors without the involvement of third-party intermediaries, such as governmental entities or financial institutions.
End-to-end asset traceability
Asset owners and investors can trace the whole history of activities performed over tokenized assets in a distributed ledger. It helps verify asset origin and provenance and prevent fraud and counterfeiting.
Tokenized assets can be programmed to comply with required global, country- and industry-specific standards and regulations, such as AML/CFT and KYC regulations, ISO 27001/27002, SEC, GLBA, PCI DSS, GDPR (for the EU), HIPAA (for healthcare), and more.
Smart contract-based automation
Self-executing protocols (smart contracts) automatically enforce fixed actions related to tokenized assets upon particular events pre-defined by token issuers. For example, asset ownership is transferred to the investor upon payment for the asset, compliance of tokenized asset transactions is checked against required standards and regulations.
All transactions on tokenized assets, including those initiated by smart contracts, are automatically validated, timestamped, cryptographically encrypted, and recorded in the immutable distributed ledger available to asset owners and investors.
Selecting an asset to tokenize, for example, real estate, a regulated financial instrument, physical commodity (e.g., a precious stone), an artwork, a collectible, a piece of intellectual property, a medicine, a cryptocurrency.
Defining the fitting token type (e.g., a utility token, a security token, NFT).
Analyzing global, country- and industry-specific legal regulations relevant for the asset (e.g., SEC regulations for financial securities, HIPAA for healthcare assets).
Creating a tokenomics model for the tokenized asset, which defines token supply and demand characteristics, outlines token value, describes the rights associated with assets.
Choosing the optimal blockchain platform for asset tokenization.
Developing smart contracts to program the behavior of the tokenized asset and automate compliance check with relevant legal regulations.
Developing blockchain-based asset management applications for token issuers and investors/token holders.
Token issuance (in the form of ITO, STO, IDO, etc.) on your own or third-party blockchain platform to enable token distribution or primary purchasing of the tokenized asset by investors.
Token listing on user-defined token exchanges to enable tokenized asset trading on a secondary market (optionally).
An illustrated example of Ethereum-based asset tokenization by ScienceSoft
ScienceSoft keeps to the following practices to increase the chances of asset tokenization success:
- Thorough analysis of the available blockchain platforms for asset tokenization to choose the one that provides optimal transaction prices and ensure economic feasibility of asset tokenization.
- Cross-chain interoperability of tokenized assets to ensure their smooth performance across different blockchain systems, trading platforms, and crypto wallets.
- Maximized automation across issuing, managing and trading tokenized assets to eliminate manual processing of asset transactions, increase their accuracy and safety.
- Seamless integration of the tokenized asset management solution with relevant corporate software (e.g., ERP, an accounting system) to eliminate double data entry on asset transactions.
- Focus on security to ensure protection of tokenized assets and sensitive financial and business data stored in the blockchain.
The cost and duration of asset tokenization vary greatly depending on:
- The type of assets to tokenize.
- The required type of a token (a utility token, a security token, NFT, etc.).
- The chosen blockchain platform for asset tokenization.
- The number and complexity of smart contracts.
- Cross-chain interoperability requirements for digital tokens.
- The number and complexity of applications (web, mobile, desktop) for token issuers and investors to manage their assets.
According to ScienceSoft’s experience, an asset tokenization project of average complexity lasts 3–6 months and requires $30,000–100,000 in investments.
Financial gains you get with tokenized assets
Increase in revenue
due to enhanced liquidity of a company’s assets, which drives their growth in value and reduces barriers to investment.
Reduction in costs
of transfer of asset ownership rights and settlement due to peer-to-peer asset trading and no need for third-party services.
of financial losses associated with fraud and penalties for non-compliance due to token development, issuance and trading in accordance with relevant standards and regulations.
Eliminated human involvement
with token-related transactions processing due to smart contract-based automation, which provides an opportunity to optimize employee workload and cut labor costs.
Blockchain Platforms for Asset Tokenization ScienceSoft Works With
The most popular blockchain to tokenize assets. Ethereum offers a range of established standards and frameworks to easily design and launch various types of tokens. However, Ethereum’s popularity results in low transaction processing speed and drives high transaction costs, which makes the platform economically unfeasible for smaller businesses.
Large enterprises looking to tokenize a range of different fungible assets.
Enables fast transaction processing and instant platform scalability while charging significantly lower cost per transaction, comparing to Ethereum. Stellar employs the provably safe and fault-tolerant Federated Byzantine Agreement (FBA) consensus protocol and offers the proprietary compliance protocol to ensure tokenized asset transactions meet AML/KYC requirements.
Midsize and large companies that need to tokenize highly regulated assets.
Relies on the Proof-of-Stake consensus protocol, which provides low transaction fees. Michelson, a Tezos’s domain-specific language for writing smart contracts, is designed to facilitate formal verification of smart contracts to assure their high-level security.
Midsize businesses that need cost-saving tokenization of fungible or non-fungible assets.
Asset tokenization consulting
- Analyzing your business needs and eliciting requirements for tokenized assets.
- Suggesting an optimal token type, architecture design and tech stack for a tokenized asset solution.
- Providing a detailed feature set for the tokenized assets.
- Introducing an integration plan with required software (e.g., a crypto wallet, accounting software, payment gateways).
- Tokenized asset security consulting.
- Documenting a tokenomics model for the asset-backed tokens.
- Delivering a roadmap for the tokenized asset implementation, including a risk mitigation plan.
Tokenized asset development
- Analyzing your asset tokenization needs.
- Architecture design for the tokenized asset solution.
- Tokenized asset development.
- Integrating the tokenized asset solution with required software (e.g., a crypto wallet, accounting software, payment gateways).
- Testing and quality assurance.
- Drawing up user training materials or conducting user training on the management of asset-backed tokens.
- Support and evolution of the tokenized assets.
ScienceSoft is an international IT consulting and software development company headquartered in McKinney, Texas. Having proven expertise in the development of blockchain-based solutions, we provide consultancy and development services to help businesses tokenize various types of assets. In our asset tokenization projects, we employ robust quality management and data security management systems supported by ISO 9001 and ISO 27001 certificates.