Tokenization, the process of converting real-world assets into digital tokens, has emerged as a significant trend in the financial and investment landscape. According to a recent report by InvestaX titled “2023’s Must-Read Tokenization and DeFi Reports: Insights, Trends, and Analysis,” the growth of tokenization has been remarkable. The report highlights that in 2022, the global tokenization market reached a value of $2.7 trillion, representing a staggering 157% increase from the previous year. This growth trajectory is expected to continue, with Citibank predicting an 80X growth in the STO market in the next few years.

The current landscape presents an opportune moment to invest in the tokenization space, as leading financial institutions are actively engaged in industry-wide development. Prominent reports from institutions such as JPMorgan, DBS, and MAS are overwhelmingly bullish on tokenization. 

This exponential growth can be attributed to several factors. Firstly, tokenization offers increased liquidity and accessibility to traditionally illiquid assets such as real estate, art, and private equity. By converting these assets into digital tokens, fractional ownership and trading become more feasible, enabling a broader range of investors to participate.

Secondly, tokenization provides enhanced security and transparency. Blockchain technology, the underlying technology behind tokenization, ensures that transactions and ownership records are immutable and verifiable, reducing the risk of fraud or tampering. Additionally, the use of smart contracts automates and streamlines the execution of contractual terms, further enhancing the security and efficiency of asset transfers.

Furthermore, tokenization enables global investment opportunities and democratizes access to investment assets. Through blockchain platforms, investors from different parts of the world can participate in tokenized assets, breaking down traditional barriers such as geographical restrictions and minimum investment thresholds.

However, it’s essential to understand the cost implications associated with tokenization. In this blog, we will explore the various costs and investments involved in converting real-world assets to security tokens.

Your first tokenized offering will probably cost you slightly more than traditional paper based offerings because you have never done it before. However, this is technology which is being upgraded and improved on a daily basis, so over time the cost of your offerings will become lower and lower each time, whilst the value tokenization brings to your investors and organization will continue to improve and grow with each offering. It is important to note that tokenization does not remove the need for lawyers, broker dealers, exchanges custodians and other service providers who exist to facilitate the legal and compliant issue of any securities offerings.

You need to think about tokenization in terms of technology. You need to understand the value and purpose of tokenization goes far beyond transparency and enhanced liquidity for offerings. We believe tokenization makes assets multidimensional and more usable and therefore more valuable and connects real world assets to the power and innovations of DeFi. You can read more about that here “Tokenization, Exponential Value Beyond Fundraising”. The investment you make now will return 100x fold over the coming years as all assets become tokenized.

1. Regulatory Compliance: One of the primary costs associated with tokenization is ensuring compliance with regulatory frameworks. Depending on the jurisdiction and asset type, there may be specific legal requirements that need to be met. Engaging legal experts and regulatory consultants to navigate the complex landscape can be a significant expense. The cost varies based on the asset class, location, and the level of regulatory oversight required. Compliance costs can include legal fees, licensing fees, and ongoing reporting obligations. Ensuring compliance with regulatory frameworks is a primary cost of tokenization. This may involve engaging legal experts and regulatory consultants to navigate the complex landscape. The cost will depend on the jurisdiction, asset class, and level of regulatory oversight required. The range is typically between $5,000 and $50,000.

2. Technology Infrastructure: Tokenization relies heavily on blockchain technology, which requires a robust and secure infrastructure. Developing or integrating with a blockchain platform to tokenize assets can be a complex process. This includes building smart contracts, establishing secure storage solutions, and implementing suitable consensus mechanisms. Additionally, ongoing maintenance, upgrades, and security audits contribute to the overall technology infrastructure costs. The range is typically between $10,000 and $100,000.

3. Token Development and Issuance: Creating and issuing security tokens involves technical expertise and resources. Developers and blockchain engineers need to design and deploy the token smart contracts, ensuring compliance with relevant security regulations. The costs associated with token development depend on factors such as complexity, customization, and the extent of required functionalities. Additionally, the process of conducting know-your-customer (KYC) and anti-money laundering (AML) checks for token holders adds to the expenses. Creating and issuing security tokens involves technical expertise and resources. The costs depend on factors such as complexity, customization, and required functionalities. The range is typically between $20,000 and $100,000.

4. Asset Valuation and Due Diligence: Before tokenizing an asset, conducting thorough due diligence and valuation assessments is crucial. Professional appraisers, auditors, and legal experts may be required to evaluate the asset’s worth, verify ownership, and assess any potential risks or encumbrances. These processes ensure transparency and build trust among potential token investors. The costs associated with asset valuation and due diligence can vary significantly depending on the asset’s complexity and the level of scrutiny required. The range is typically between $5000-100,000.

5. Marketing and Investor Outreach: Once assets are tokenized, attracting potential investors becomes crucial to create liquidity and realize the benefits of tokenization. Engaging in marketing efforts and investor outreach campaigns incurs costs such as branding, digital marketing, legal compliance with securities laws, and participation in relevant investment conferences and events. The expenses for marketing and investor outreach can vary depending on the asset class, target audience, and geographical scope. The range is typically between $5,000 and $1 million.

6. Ongoing Compliance and Maintenance: After tokenization, ongoing compliance is necessary to ensure continued adherence to regulatory requirements. This includes monitoring changes in securities laws, implementing necessary updates to smart contracts, conducting periodic audits, and managing investor relations. These ongoing compliance and maintenance costs contribute to the overall expense of tokenization. The range is typically between $5,000 and $50,000.

*It is important to note that these are just estimates and the actual cost of tokenization will vary depending on the specific project and requirements.

The market for tokenization has seen the emergence of three distinct models. 

The first model, known as token issuance, involves utilizing a technology-focused company to issue security tokens on behalf of asset owners. While this model provides some value, investment firms often require additional licensed services for the issuance and trading of securities. Therefore, token issuance alone is not sufficient.

The second model is the security token exchange model, which combines technology and the necessary licenses to facilitate the complete life cycle management of STOs. This model resembles a tokenized version of traditional stock exchanges, with various services and fees. However, many STO exchanges operate on private blockchains, disconnected from the broader ecosystem of digital currencies and innovations from the Decentralized Finance industry. Although this model adds value, it falls short of being the ultimate solution.

The third model, which we consider to be superior, is the “Licensed” Tokenization SaaS (Software as a Service). This model combines the advantages of both token issuance and security token exchanges while eliminating their drawbacks. It offers customization and control over assets and investors, enabling the utilization of broker-dealer, OTC, and exchange services without requiring additional licenses. From a market solution perspective, this model represents the best of both worlds and serves as the end game.

Our Tokenization SaaS platform provides a comprehensive software-as-a-service solution for the issuance, trading, and custody of security tokens in the private market. We hold a Capital Markets Services and Recognized Market Operator license from the Monetary Authority of Singapore, allowing us to engage in securities dealings and operate an organized market for securities. Our platform offers a range of services, including seamless banking integration, robust user verification through our KYC module, flexible OTC trading options, primary issuance services, advanced blockchain technology, and smart contract deployment. With our infrastructure, you can easily tokenize your assets and leverage the benefits of our platform.

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Tokenize your assets on top of our infrastructure

Our Tokenization SaaS platform is a software-as-a-service solution that enables the issuance, trading, and custody of security tokens for private market assets. We have been granted a Capital Markets Services and Recognized Market Operator license by the Monetary Authority of Singapore to deal in and operate an organised market for securities, respectively. Our service offers a one-stop solution for all your security token needs, including seamless banking integration, thorough user verification with our KYC module, flexible OTC trading options, primary issuance services, cutting-edge blockchain technology, and smart contract deployment.

Benefits of Using our Tokenization SaaS Platform:

All-inclusive one-stop-shop solution: Tokenization SaaS platforms offer everything an investment firm needs to get started with tokenization, including issuance, trading, and custody solutions.

Latest blockchain technologies: Tokenization SaaS platforms use the latest blockchain technologies to ensure the security and integrity of tokenized assets and a choice of blockchains as well.

Fast integration time: Tokenization SaaS platforms are designed to be easy to integrate and onboard, allowing investment firms to get started immediately.

Low cost: Tokenization SaaS platforms offer the most cost-effective solution. 

We are pioneers in the development of the next generation of venture capital (VC), real estate (RE), and private equity (PE) funds, as well as DESOPs, all powered by tokens. Understanding the significance and immense opportunity that this brings is essential, which you can explore in detail here. Lastly, this is the new paradigm for fundraising for projects moving forward especially platforms and products that want big user bases here.

If you’re interested to learn more about how you can build your business on top of our infrastructure and what we can offer for your company as your tokenization partner, then contact us here. Thank you.