Prompt development of digitalization in all sectors triggers change within financial markets. Existing approaches to securitization are no longer in-demand as the procedures are complicated, long and cannot keep up with the pace of change, that new technologies bring to virtually every aspect of one’s life. Tokenization has come along to provide reliable instruments and revolutionize the whole financial industry.
[Note: This is a sponsored article.]
What is the Proof-of-Asset Protocol by BANKEX?
BANKEX is a TOP-50 FinTech company worldwide and is among Top-9 most promising ICO in the world.
BANKEX Proof-of-Asset protocol is, in essence, a combination of BaaS (Bank-as-a-Service), blockchain technologies and fintech. Any asset a client chooses can be tokenized by BANKEX and offered to investors around the globe without having to wait for portfolio mass to be accumulated. Thus, within a smaller time frame, the asset is turned into money.
This technology will alter how ordinary transactions work in various markets, making them clearer, faster and much more reliable.
Here are just a few examples of the asset tokenization.
Tokenization of Shares of Non-Public Companies
Literally any asset that generates cash flow can be tokenized. Nevertheless, the technology described is best applied to financial assets with capitalization of more than $100 million and stable cash flow.
Assets that may be considered for non-public companies: private shares in late stage, but not yet public companies.
Being a non-public company carries limitations in terms of investment opportunities due to legal issues (in non-public companies the number of the shareholders must be controlled in order to not change the legal formation of said company). Inconvenience caused by this factor can lead to disagreements between managers and investors and may result in slower development and growth of the company.
With blockchain technology, all the details in regard to shares can be written into a Smart Contract. A portion of these shares is tokenized as an asset into a Smart Asset, this in turn could be allocated among early investors or investors with the a miniscule investment. Any entity, e.g. SPV, can only become a Smart Asset holder if it complies with the laws and regulations of the jurisdiction the company issuing a Smart Asset is located in. All presence rights of token holders are passed to SPV. So, if agreed, both the sellers and the buyers of this Smart Asset can continuously trade amongst each other, without influencing the structure of shareholders.
For non-public companies tokenization of their equity into a Smart Asset might be the only way to increase their capital liquidity.
For early investors it provides the opportunity to hedge their risks and provides a tool to invest in valuable but formerly unavailable assets.
A Step by Step Guide on How to Tokenize an Asset
What you are about to take a look at is not a figment of the imagination, there’s a working prototype that you can try by going to our Demo. In this section let’s talk about making assets a little more sophisticated, that bit smarter. Let us dive into the discussion of Smart Assets, assets that have been validated, audited and then tokenized. Assets that have been made available by BANKEX to be invested in, from all around the globe. Ones that you can create, sell or invest in not leaving the comfort of your own home.
Here is how it works. A typical Smart Asset development process follows logical stages:
- Initial Contract
- Validation
- Audit
- Legal
- Proposal
As a result, the owner of the asset acquires a smart, tokenized asset, that can be easily traded within the BankEx ecosystem.
Initial Contract
The Product owner determines how each contract should be initiated. This is typically done while calculating Product Instance. This article deals with the most common issues of Smart Assets.
In all cases the results of Initial Contracts will be:
- Smart Asset entity creation
- Assigning each Smart Asset a unique ID to facilitate its future connection to IoT and Oracle
- May involve the creation of a legal Soft Commitment
- Data record on the blockchain
Firstly, the registration data of the Originator End Client will be required. For the demo version, we are using the web interface with a MetaMask Ethereum Wallet plugin. In this case an Ethereum wallet address will be automatically taken from the plugin. While using other iterations or other blockchains, the process may differ.
Secondly, the initialization of the contract data is filled in the General Information section. General information can be input either manually or automatically by the client himself. The accuracy of the information given is not of major importance for the tokenization itself, the required accuracy for the Smart Asset will be determined by the logics of further contracts.
Lastly, the input data can be of different types: strings, digits, catalogue, etc. – depending on the programmers preferences. Furthermore, the General information block can hold part of its function outside of blockchain logics and out external oracles, just on UI.
Validation
The aim of this step is to validate the General information.
The results reached should include the following:
- Input of additional information into the Smart Asset entity
- A Formula, that will determine the importance of the validation conducted
- The Procedure saved on the blockchain
Several methods of possible validation are mentioned below:
- IoT Sensors
- External Oracles (quantity of External Oracles within Smart Asset is not limited, still every calculation will have its own price)
- Confirmation using Pass ID/Registration Number etc.
- You can do anything you need for the Product Instance.
Audit and Legal
Technically any interaction with third-party audit/ legal/ governmental organizations is also External Oracle.
The adaptation of Smart Asset protocols is often associated with complexity in terms of legal status acquisition. These concerns do exist, but are subdued by the fact that all off-chain conditions can be included into the Smart Asset contract chain, being part of the blockchain ecosystem makes them irreversible, providing additional security and trust for the investor.
Smart contract implementation stems from the high level of inefficiency found in most organizations today, very soon we can expect it to be implemented across nations.
Cost of delivery estimates and automated customs taxes can be also added to this block.
Proposal
And finally, last, but not least – the proposal. The most difficult, but the most interesting stage of them all.
At this stage, the following is done:
- The trading rules for the chosen type of Smart Asset are set
- Asset authenticity rate is calculated
- The asset’s base price is determined
- The assets intended use is specified
- Hard Commitment parameters are set
- Cash flow distribution according to the Smart Deal is determined
In fact, it is much simpler than it looks. Just pick any deal that is of your interest, no matter how complex it is, decompose it into small elements, eliminate the human factor – and what you will get is a Smart Deal.
What happens next is that the asset is finally released in the form of a token, it’s fair bid is formed on the basis of all the aforementioned factors and it is placed on the Smart Asset Exchange, making it publicly available without the usual legal and regulatory hassle.
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What do you think of BANKEX’ Proof-of-Asset protocol and asset tokenization? Let us know in the comments below.
Images courtesy of BANKEX