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The Swiss entry portal for tokenizations and digital assets
What does tokenization mean?
Tokenization is based on distributed ledger technology (DLT) of which blockchain technology is the most prominent option. In recent years, these promising technologies and its adaptions into practice have continuously evolved. The knowledge among academics as well as practitioners has grown continuously, and several use cases have been developed and tested.
After a first phase of initial coin offerings (ICO) that sometimes led to disappointment among market participants, a new era of tokenization seems to be evolving.
Instead of tokenizing utility rights the focus now lies on assets and securities. This results for example in equity or debt tokens, which represent traditional financial instruments but are wrapped in a new, decentralised and (more than ever) digitalised form.
Why should you use tokenization?
The potential reasons for tokenization are diverse and, above all, very individual. Basically, however, these can be broken down into the following three main factors:
The reasons for tokenization are diverse and, above all, very individual. Basically however, these can be broken down into the following three main factors:
Increase in efficiency
Through automation, especially of the settlement & clearing processes, but also through digitization of e.g. corporate actions and reporting.
The digital form of an issuance allows a larger reach-out to potential investors. In addition, tokenization always enables tradability, at least to a limited extent. Previously, many assets were almost impossible to trade at all because the underlying processes were very cumbersome. By tokenizing theses assets they will become easier tradeable. Nevertheless, many assets will only ever have very limited liquidity. This is as tradability does not necessarily guarantee liquidity.
The decentralized or distributed architecture of DLT-based systems automatically requires a certain transparency towards the parties involved as well as the assets themselves. This transparency creates security for everyone and enables the creation of interesting applications. It allows, for example, an issuer of equity tokens to view an up-to-date overview of its shareholders' registry at any time and thus saves the tedious reconciliation works.
It should also be noted that the correctness of the above points is highly dependant on the exact implementation and the facilitating ecosystem. Whether the advantages of a tokenization can actually materialize must be assessed for the individual issuance. Often, these days marketing-related motivations are still the decisive factor for tokenization.
We are convinced that the three reasons mentioned above will prevail in the medium term and thus will have a strong influence on the financing of projects and companies. The more assets that are available in a digital form (as digital assets), the more new applications and business models (e.g. automated loans on digital assets) will follow.