Are you looking to do the Tokenized Asset Offering (TAO)?
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According to Forbes experts
, the Tokenized asset offering (TAO)
will become the main trend of the cryptocurrency market in 2019, since this type of crowdfunding solves the main problem of ICO - compliance with the law, retaining almost all its advantages. Next, we will look at how this problem was solved and what the trump cards the legalized version of ICO received.
As it turned out, solving the main problem of ICO
is quite simple - it is enough to register the issue in accordance with current legislation. In the US, for this you need to apply to the Securities and Exchange Commission (SEC), which operates under the Securities Act of 1933 and "Blue sky laws".
Mobius lawyers: In these states, you are most likely denied registration of token emission
When registering a Tokenized asset offering
to the SEC, the issuer must complete form S-1
and submit documents to the Electronic Data Gathering, Analysis, and Retrieval system
(EDGAR). After that, you need to undergo an independent audit so that potential investors can get an idea of the financial condition of the company.
It is also necessary to publish the project of investment proposal - an analogue of the usual white paper
, only much more detailed and elaborated. The information in this document is presented not just "to let you know", it is a commitment to investors
on the intended use of funds, which failure to comply with is fraught with lawsuits.
#2 Intrinsic value
Unlike ICO, which offer investors utility tokens that are exclusively for accessing the platform and have no other value, TAO offers tokenized assets
— digital certificates (securities) entitling:
- physical and virtual assets: stocks, currencies, oil, real estate;
- share of ownership of a company or its separate division;
- direct or representative participation in the management of the company;
- dividend or share of net income;
- loan commitments.
These digital certificates
have real value in their own right, because they provide an opportunity to be directly involved in the process of generating profit, or they can be sold on the market without being tied to tokens. Because of this, such digital assets are more attractive to investors - they carry less risk.
#3 Asset divisibility
With asset tokenization
, each token is a small fraction of the total value of the tokenized asset
. Thanks to this, simple investors with a small capital get the opportunity to invest in highly profitable objects that were previously available only to very rich people.
The artificial island of Palm Jumeirah in the United Arab Emirates
For example, previously only a select few could invest in the creation of artificial islands
such as the Palm Islands in the United Arab Emirates. The total cost of building this archipelago is estimated at $ 14 billion. And it must be assumed that the entry barrier in this and similar projects was at the level of several million dollars.
However, if tokenize construction
, for example, dividing it into 1 million virtual parts (tokens), the input barrier will be reduced by several orders of magnitude. In the case of the Palm Islands - up to $ 14,000.
An elite complex in the East Village has become the first major tokenized property in Manhattan
If you take less ambitious objects, for example, the first tokenized property
in Manhattan worth $ 30 million, the entrance barrier will be reduced to $ 30.
One can tokenize not only buildings and islands, but also objects of art, planned income, intellectual property, rare cars, credit commitments, construction of factories and even space missions - everything that has value and what can be represented as a digital asset
#4 High liquidity
Liquidity is the property of assets to be sold in a short time at close to the market price. The higher the rate of sale, the greater the liquidity. In the case of tokenized assets
, the sales rate can reach several minutes, since the token is the same cryptocurrency
Comparison of speed of popular blockchains and payment services
A simple example: you own a part of an expensive building in a great area, and you urgently need money for treatment. If the share ownership is presented in the traditional form (a paper contract and entry in the state register), the sale will take from a week to a month. At the same time, it is necessary to spend a lot of effort on collecting the necessary documents, obtaining consent for the sale from other owners and concluding a sale and purchase agreement.
If the ownership is presented in the form of a token
- it will take several minutes. And all that is needed for the sale of real estate is to open the application in the smartphone and apply for the sale of tokens. Most of all, this is reminiscent of buying and selling currencies in Forex, only tokens can be traded 24/7.
#5 Access to global markets
Since the purchase and sale of tokens is not burdened with paperwork, to participate in the transaction it is enough to connect to the network and register on the trading floor (offline operations are also possible, but here you need a computer, laptop, phone or tablet).
It follows from this that Tokenized asset offering gives access to global markets:
- The Issuer may register the issue of tokens in his country and sell them on international sites without intermediaries. Thanks to this, the reach of potential investors increases to the whole world.
- The investor in turn can buy tokens that are issued in any country, being anywhere, if it is not prohibited by local law (Nepal, Kyrgyzstan, Bolivia, Ecuador).
Problems can only arise in terms of passing KYC and AML. These are identification and identity verification procedures that help identify fraudsters, criminals, corrupt officials, terrorists, and those who finance them. According to the SEC rules, all blockchain startups
must use KYC to verify investors.
#6 Possibility of return
Anyone who has studied blockchain technology
knows that cryptocurrency transactions cannot be canceled if coins are sent to an erroneous address or stolen. With conventional tokens
, the situation is the same; this is one of the key problems of investing in virtual assets. And that is why the level of fraud at the peak of ICO popularity exceeded 80%.
The level of fraud in the market of ICO startups according to Satis Group LLC
Tokenized assets work differently. These are digital securities, the issuer and owners of which are known for their KYC procedure. And the history of these assets is also known: who bought them and when, at what price and on what site.
Thanks to this and the legislation on securities, which obliges to return the property in case of error or fraud, transactions with tokenized assets
can be canceled. In conventional ICO and STO
, this function is almost not used, but for
TAO initiatives it is a prerequisite, without which the issue will not be registered with the SEC.
You can return tokens:
- by decision of the arbitration of the trading platform where the wrong / unauthorized transfer of assets was held;
- by agreement of the current holder of tokens;
- by court order.
#7 Data transparency
According to the legislation on securities, when registering a TAO with the SEC, a company must disclose information about the owners, provide financial statements and any other relevant information for investors
. Considered significant is everything that can influence the decision of investors in assessing the profitability and risk of an asset.
In particular, such information is:
- information about political risks, for example, if a company has a relationship with a partner who is under US and / or EU sanctions;
- management structure description - how decisions are made;
- information about the beneficiaries of the company, issue of tokens;
- characteristics of the token: functions, security, etc.
In the United States, this information and the results of an independent audit are public. You can find this information in the EDGAR database. Through this approach, any potential investor can personally verify the issuing company, which reduces the risk of fraud and increases the efficiency of investment decisions.
In 2018, there was a sharp decline in investment in ICO projects
It is noteworthy that the decline of the ICO era
is precisely connected with the obligatory disclosure of information about the issuing company and its owners. This is due to the 80% of the fraudulent projects mentioned earlier.
After strengthening the regulation of the market, it became much more difficult and more dangerous to create scam projects, so the number of ICOs has drastically decreased.
#8 Efficiency and scalability
Tokenization of assets using the blockchain
and smart contracts allows you to significantly reduce the number of intermediaries, speed up sales operations and automate much of the workflow and bureaucratic procedures. For example, you can now fully automate:
- KYC and AML procedures, if the user has previously received an ID certificate at KYC Legal, ICO Pass or their equivalent;
- dividend payments, bonuses, bonuses, as well as the distribution of investment income among holders of tokens;
- collection of signatures, transfer of funds, distribution of checks;
- vote counting and authentication.
All this together allows the TAO-processes
to be scaled to almost infinity. Thus, thanks to the blockchain and tokenization
, we get the best available asset management tools. And this is not only about the possibility of buying and selling digital securities, but also about managing the companies that issued them (if they are management-enabled tokens).
In addition, information aggregated on blockchain sites
is more accurate, it can be collected and processed in real time. Due to this, it is possible to get better analytics and more efficiently respond to the market dynamics - another example of TAO efficiency.
#9 Ease of launch
TAO has two alternatives: ICO and IPO
. ICO is a simple and fast mechanism for raising funds, while an IPO has high requirements for the financial status of the issuer and can take more than a year. At the same time, the first method is available to almost everyone, even if you are a startup
that does not have a single dollar in the account, and the second is only for successful companies.
follows the same scenario as the ICO, except for the need to register with the SEC. Registration usually takes from 3 to 6 months. There are financial requirements, but they are significantly lower than in the IPO. See the table for a full list of differences.
What can be done with ordinary securities? Buy, sell, put in a box and use as a deposit. In other words, the functionality of traditional securities is very limited.
What can be done with digital securities:
- buy, sell, store and use as collateral;
- use as a voice when making management decisions;
- use in loyalty programs, ratings;
- use to pay for goods and services;
- pay for access to the platform.
And this is not a complete list of security-tokens capabilities
- types of tokens that are carriers of tokenized assets. No one has made such a list yet, as people are constantly inventing new ways to use security-tokens
What TAO lost
Crowdfunding lost two things in the transition from ICO to TAO:
- Anonymity. Now all participants in the process must be known, otherwise they will not be allowed into the market, which can be bad only if you are a fraudster or paranoid who believes in conspiracy theories.
- Availability. It is no longer possible, without investing a penny, to create a blockchain startup and earn millions of dollars. And for a couple of months and without any direct obligations to investors.
Both losses are ambiguous, as though they give more freedom to issuing companies and investors, they also contribute to the growth of fraud and do not protect depositors in any way. Consequently, you can do without these " advantages" - the market will only benefit from it.