Tokenization is the process of turning real assets (rights) into digital tokens. In fact, this process allows you to transform a real object into the form of a digital asset that is in circulation. For the circulation of tokens, blockchain platforms are being created, using which the purchase and sale of such assets becomes possible.
In essence, tokens can be regarded as a kind of digital certificate that acts as a guarantee of the company’s obligations to the owner of this token.
The process looks like this:
The process looks like this:
- Selecting an asset. To convert to the form of a token, you must select a real asset, which can be a share in property/security/other object.
- Creation of tokens. To be able to circulate, it is necessary to develop appropriate tokens on the blockchain platform into which this or that object will be converted.
- Placement. Created tokens are placed on the blockchain platform
- Trade. After their placement, tokens become available for purchase and sale transactions.
Astana International Financial Centre (AIFC).
The issue of decentralized financial actives (hereinafter – DFA) is regulated by the internal legislation of the Republic of Kazakhstan and by the acts of the AIFC.
Law of the Republic of Kazakhstan “About Informatization” in Art. 1 classifies cryptocurrency as property and defines it with the term “digital asset”, which means property created in electronic digital form using cryptography and computer tools calculations that are not a financial instrument, as well as an electronic digital form of certification of property rights.
Digital assets, in turn, can be either secured or unsecured.
In accordance with the provisions of Article 33 of this Law, secured digital assets include a digital token and other digital assets that are a digital means of certifying property rights to goods and (or) services issued (provided) by the person who issued the secured digital asset. In fact, the value of a backed cryptocurrency, for example, directly depends on real assets. Among unsecured digital financial assets, it is customary to distinguish digital tokens received as a reward for participation in maintaining consensus in the blockchain in the manner established by the legislation of the Republic of Kazakhstan.
The legislator of the Republic of Kazakhstan prohibited the release and use of unsecured digital assets in the country. Collateralized digital assets represent digital proof of ownership of goods and/or services produced (provided) by the entity that issued the collateralized digital asset. However, such an asset does not provide rights to financial instruments and does not give its owner any legal rights in relation to the company.
European Union (EU).
The European Central Bank states that instruments having the characteristics of securities must be issued in accordance with the rules for the public issue of securities.
MiCAR reduces risks for cryptocurrency investors. Additionally, token issuers have the following obligations:
The law defines a crypto asset as follows: “a digital representation of value that can be transferred and stored electronically based on distributed ledger technology or similar technology.” Companies issuing asset-based tokens are required to provide transparent and honest information to their owners, have a strategy for identifying, managing and potentially disclosing conflicts of interest, have an effective governance system, comply with minimum capital requirements, maintain an asset reserve, and have an adequate custody policy assets, offer owners the opportunity to constantly redeem tokens and much more.
Tokens must be treated as electronic money and comply with the relevant operational requirements under the EU Directive on the establishment and prudential supervision of electronic money institutions.
MiCAR regulates:
Legal regulation of tokenization in the United States of America (USA).
Tokenization processes are actively underway in the United States . ICO, IEO and STO are conducted it is important to note that the main issue is the compliance of transactions with tokens with the Securities Act of 1933. For transactions, you must obtain a broker-dealer license. There are certain qualifications for different levels of token issues, but uniform regulation is not provided at the federal level. It is important to say that a special place is occupied by the Securities and Exchange Commission, which is often an opponent of companies in the event of litigation regarding the procedure for the legal issue of tokens.
The regulator checks whether the asset is considered a security and, accordingly, whether it is regulated by the said law. If an asset is classified as a security, certain requirements apply to its registration and issue, failure to comply with which may result in legal action by the regulator against the company.
Stablecoin issuers must register with the United States Financial Crimes Enforcement Network ( FinCEN ) as a money transmitter.
New York State Department of Financial Services requirements, for example, provide that each owner has the right to redeem the stablecoin from the issuer at face value less fees. Moreover, the issuer's assets must be separated from its own assets and must be audited monthly by an independent certified auditor.
Thus, the United States provides conditions for creating transparency and security in transactions with tokens.
The issue of decentralized financial actives (hereinafter – DFA) is regulated by the internal legislation of the Republic of Kazakhstan and by the acts of the AIFC.
Law of the Republic of Kazakhstan “About Informatization” in Art. 1 classifies cryptocurrency as property and defines it with the term “digital asset”, which means property created in electronic digital form using cryptography and computer tools calculations that are not a financial instrument, as well as an electronic digital form of certification of property rights.
Digital assets, in turn, can be either secured or unsecured.
In accordance with the provisions of Article 33 of this Law, secured digital assets include a digital token and other digital assets that are a digital means of certifying property rights to goods and (or) services issued (provided) by the person who issued the secured digital asset. In fact, the value of a backed cryptocurrency, for example, directly depends on real assets. Among unsecured digital financial assets, it is customary to distinguish digital tokens received as a reward for participation in maintaining consensus in the blockchain in the manner established by the legislation of the Republic of Kazakhstan.
The legislator of the Republic of Kazakhstan prohibited the release and use of unsecured digital assets in the country. Collateralized digital assets represent digital proof of ownership of goods and/or services produced (provided) by the entity that issued the collateralized digital asset. However, such an asset does not provide rights to financial instruments and does not give its owner any legal rights in relation to the company.
European Union (EU).
The European Central Bank states that instruments having the characteristics of securities must be issued in accordance with the rules for the public issue of securities.
MiCAR reduces risks for cryptocurrency investors. Additionally, token issuers have the following obligations:
- Stablecoins must have required reserves to cover redemption requests.
- Information about the possibility of conflicts of interest must be provided.
- Justification of the fair value of stable coins is required.
The law defines a crypto asset as follows: “a digital representation of value that can be transferred and stored electronically based on distributed ledger technology or similar technology.” Companies issuing asset-based tokens are required to provide transparent and honest information to their owners, have a strategy for identifying, managing and potentially disclosing conflicts of interest, have an effective governance system, comply with minimum capital requirements, maintain an asset reserve, and have an adequate custody policy assets, offer owners the opportunity to constantly redeem tokens and much more.
Tokens must be treated as electronic money and comply with the relevant operational requirements under the EU Directive on the establishment and prudential supervision of electronic money institutions.
MiCAR regulates:
- utility tokens;
- stablecoins ;
- ART tokens, the stability of which is maintained by being tied to the value of the property.
Legal regulation of tokenization in the United States of America (USA).
Tokenization processes are actively underway in the United States . ICO, IEO and STO are conducted it is important to note that the main issue is the compliance of transactions with tokens with the Securities Act of 1933. For transactions, you must obtain a broker-dealer license. There are certain qualifications for different levels of token issues, but uniform regulation is not provided at the federal level. It is important to say that a special place is occupied by the Securities and Exchange Commission, which is often an opponent of companies in the event of litigation regarding the procedure for the legal issue of tokens.
The regulator checks whether the asset is considered a security and, accordingly, whether it is regulated by the said law. If an asset is classified as a security, certain requirements apply to its registration and issue, failure to comply with which may result in legal action by the regulator against the company.
Stablecoin issuers must register with the United States Financial Crimes Enforcement Network ( FinCEN ) as a money transmitter.
New York State Department of Financial Services requirements, for example, provide that each owner has the right to redeem the stablecoin from the issuer at face value less fees. Moreover, the issuer's assets must be separated from its own assets and must be audited monthly by an independent certified auditor.
Thus, the United States provides conditions for creating transparency and security in transactions with tokens.
Utility tokens.
Utility tokens are digital tokens that are created on the blockchain and can be called user tokens. Often utility tokens are issued through ICO , IEO or TGE . Utility tokens are used to finance blockchain projects, as a result of which they are sold as part of the ICO (initial offering).
However, it is important to note that utility tokens when placed through ICO can be regarded as securities, which leads to a violation of the law. Thus, in the USA there is the Securities Act of 1933, which regulates financial instruments that fall under the definition of a security. Thus, such instruments include shares, bills, bonds and other securities.
If a token is considered an investment contract, then it must be registered with the SEC . This creates certain risks for both investors and the issuing company.
Share tokens.
Tokenized shares are securities that have been converted into security tokens. In fact, tokenized shares are real shares that certify ownership and the possibility of receiving income in the form of dividends. Tokenized shares are available worldwide and their price is linked to the security. In fact, tokenized shares combine the features of shares as securities, as well as the advantages of blockchain technology. In order to carry out transactions with stock tokens, intermediaries in the form of brokers or banks are not required, which in turn speeds up the process of transactions.
Tokenized shares are securities because they fully correspond to the characteristics of securities.
Trading of tokenized shares is carried out on a crypto exchange. Security tokens are offered during STO (Security token offering ) - sale of shares under the guise of a tokenized asset; thanks to the transaction, the investor becomes the owner of a share in the authorized capital of the company.
Stablecoins.
Stablecoins are a cryptocurrency whose main function is to ensure value stability . Stablecoins are inherently tied to quotes of fiat money (dollar/euro) or to quotes of commodities such as gold or oil.
In fact, stablecoins allow you to save savings in situations of high market volatility, as well as hedge risks when trading cryptocurrency.
Stablecoins allow you to save money in digital equivalent and they differ from other tokens precisely because they are tied to the value of real assets. As a result, they are truly the most stable of all types of tokens.
Stablecoins are quite close in nature to electronic money, and they provide stability for storing and transferring funds.
Types of stablecoins:
To ensure:
Asset - backed tokens – tokens representing digital obligations for services and goods.
The issuing company undertakes to exchange these tokens for goods or services. The issuer buys or produces assets and then issues tokens. These tokens are created precisely after the transfer of a physical asset under the control of the issuer.
Non-fungible tokens (NFT).
A non-fungible token is a type of cryptographic token. Such a token is non-fungible, that is, it exists in a single copy, it is unique and cannot be reproduced.
Often such tokens are used for virtual art or in computer games. It is important to note that the NFT is only available for trading in full, not in part. You cannot be the owner of 50% of NFT , you can only be the owner of the entire asset.
Utility tokens are digital tokens that are created on the blockchain and can be called user tokens. Often utility tokens are issued through ICO , IEO or TGE . Utility tokens are used to finance blockchain projects, as a result of which they are sold as part of the ICO (initial offering).
However, it is important to note that utility tokens when placed through ICO can be regarded as securities, which leads to a violation of the law. Thus, in the USA there is the Securities Act of 1933, which regulates financial instruments that fall under the definition of a security. Thus, such instruments include shares, bills, bonds and other securities.
If a token is considered an investment contract, then it must be registered with the SEC . This creates certain risks for both investors and the issuing company.
Share tokens.
Tokenized shares are securities that have been converted into security tokens. In fact, tokenized shares are real shares that certify ownership and the possibility of receiving income in the form of dividends. Tokenized shares are available worldwide and their price is linked to the security. In fact, tokenized shares combine the features of shares as securities, as well as the advantages of blockchain technology. In order to carry out transactions with stock tokens, intermediaries in the form of brokers or banks are not required, which in turn speeds up the process of transactions.
Tokenized shares are securities because they fully correspond to the characteristics of securities.
Trading of tokenized shares is carried out on a crypto exchange. Security tokens are offered during STO (Security token offering ) - sale of shares under the guise of a tokenized asset; thanks to the transaction, the investor becomes the owner of a share in the authorized capital of the company.
Stablecoins.
Stablecoins are a cryptocurrency whose main function is to ensure value stability . Stablecoins are inherently tied to quotes of fiat money (dollar/euro) or to quotes of commodities such as gold or oil.
In fact, stablecoins allow you to save savings in situations of high market volatility, as well as hedge risks when trading cryptocurrency.
Stablecoins allow you to save money in digital equivalent and they differ from other tokens precisely because they are tied to the value of real assets. As a result, they are truly the most stable of all types of tokens.
Stablecoins are quite close in nature to electronic money, and they provide stability for storing and transferring funds.
Types of stablecoins:
To ensure:
- provision of fiat money (dollars/euros);
- providing cryptocurrencies;
- provision of algorithms (no reserves).
- centralized;
- decentralized;
- decentralized algorithmic.
Asset - backed tokens – tokens representing digital obligations for services and goods.
The issuing company undertakes to exchange these tokens for goods or services. The issuer buys or produces assets and then issues tokens. These tokens are created precisely after the transfer of a physical asset under the control of the issuer.
Non-fungible tokens (NFT).
A non-fungible token is a type of cryptographic token. Such a token is non-fungible, that is, it exists in a single copy, it is unique and cannot be reproduced.
Often such tokens are used for virtual art or in computer games. It is important to note that the NFT is only available for trading in full, not in part. You cannot be the owner of 50% of NFT , you can only be the owner of the entire asset.
In the United States, the Securities Commission (SEC) in a large number of disputes recognized tokens as securities to which the Securities Act of 1933 applies, and as a result, transactions were recognized as being carried out in violation of the law.
If the regulator considers tokens as securities, it is necessary to comply with the relevant requirements, including:
- registration of tokens as an investment contract;
- registration of an organization as an exchange;
- having investor status;
- compliance with special release procedures.
Issuer's responsibilities:
- Availability of mandatory reserves to cover redemption requests;
- Providing information upon request to avoid conflicts;
- Justification of the fair value of stable coins;
- Drawing up a project for issuing tokens that meets the requirements of the regulatory authority;
- Possibility of obtaining financing during tokenization.
- Ensuring transparency of operations;
- Transaction tracking;
- Determining the identity of the investor, as a result - assistance to law enforcement agencies if necessary.
- Possibility of investing funds;
- Right of redemption;
- Possibility of increasing capital over time;
- Possibility of purchasing only part of the token, which allows you to participate in the transaction with a small amount of funds.
Real estate: East Village apartment complex in Manhattan.
This property has been tokenized on the blockchain Ethereum . Each of the apartments in it has an area of 158 sq. m. m, which makes it available only to a limited number of investors.
However, thanks to the use of tokens, even not the richest investors can become co-owners of such real estate, since it becomes possible to invest even a small amount in the project.
Art.
Blockchain company Injective Protocol staged a public burning of a Banksy painting called Morons (White) and converted it into an NFT token. Company officials called it "a distinct visual manifestation of artistic action in real time" and the first time an original work of art has been converted into a non-fungible token. A few days later, a digital copy of the painting was sold by Injective Protocol for $380,000.
This property has been tokenized on the blockchain Ethereum . Each of the apartments in it has an area of 158 sq. m. m, which makes it available only to a limited number of investors.
However, thanks to the use of tokens, even not the richest investors can become co-owners of such real estate, since it becomes possible to invest even a small amount in the project.
Art.
Blockchain company Injective Protocol staged a public burning of a Banksy painting called Morons (White) and converted it into an NFT token. Company officials called it "a distinct visual manifestation of artistic action in real time" and the first time an original work of art has been converted into a non-fungible token. A few days later, a digital copy of the painting was sold by Injective Protocol for $380,000.
Tokenization represents an important evolution in the financial and investment landscape, providing new opportunities for asset portfolio diversification and increased liquidity. However, the success of asset tokenization is closely related to ensuring legal and regulatory compliance.
Legal consulting plays an important role in this process, providing a comprehensive understanding of the legal aspects of asset tokenization , protecting the interests of clients and creating a transparent legal framework for this type of investment. Taking into account the rapid development of blockchain technologies and digital assets, professional legal support is becoming a necessary element for the successful implementation of asset tokenization projects .
Legal consulting plays an important role in this process, providing a comprehensive understanding of the legal aspects of asset tokenization , protecting the interests of clients and creating a transparent legal framework for this type of investment. Taking into account the rapid development of blockchain technologies and digital assets, professional legal support is becoming a necessary element for the successful implementation of asset tokenization projects .
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