- Digital Assets 101: What are Digital Assets and how are they different from Digital Securities?
- TokenFunder Launches Nest Capital Mortgage Investment Corporation Investment Offering
- BIS Quarterly Review: “On the future of securities settlement”
- TokenFunder Referral Program: “Better with Friends” and get your unique referral URL code to get in on the FreedomX beta test.
1. Digital Assets 101:
What are Digital Assets and how are they different from Tokenized (Digital) Securities?
We get these questions a lot!
Before we answer them, let’s start with one important point: TokenFunder does not create or issue digital assets that are cryptocurrencies such as Bitcoin or Ether. We also don’t issue or sell digital assets that are utility tokens, payment tokens, or protocol tokens (which are generally not expected to be investment products that generate a return for their owner).
TokenGX (an exempt market dealer using TokenFunder.com) has been approved by securities regulators to legally issue what are called digital securities or security tokens, for real companies with real business plans and legally-binding offering memorandums. In short, TokenGX (operating the TokenFunder.com platform) sells investment products to investors for real companies (issuers). TokenGX is also the only Canadian company approved for testing secondary trading using blockchain technology.
Digital assets are, broadly speaking, all assets created natively digital using secure blockchain technology. Digital securities are a subset of all digital assets.
How easy is that?
We promise that buying and owning digital assets will all become clear very soon.
What are tokens?
Let’s look at an example from the real world. RealEstateDeveloper Inc. issues a class of shares, say “Preferred Class A” shares. RealEstateDeveloper Inc. promises certain rights and obligations when it sells the shares. These rights and obligations are written up in a Prospectus (public company) or an Offering Memorandum (private company). Owners of these shares are called shareholders or shareowners. Traditionally, share certificates were bearer securities – the holder of the paper would own the shares. So far, so good.
In 2020, when we say we “digitize” those traditional shares we don’t mean creating a digital PDF or simply taking the serial number of a share certificate and storing it digitally in a database. That’s so… 2010’s.
Today, we can do something much more interesting, powerful, secure and efficient using a blockchain such as Ethereum — we can program the shares and deploy them into the Ethereum blockchain to secure them. Those programs are called smart contracts and, importantly, when we include certain functions in the smart contract that let us own and transfer ownership, we call that class of smart contracts… “tokens“. (As an aside, some smart contracts can act as insurance policies, automatically paying out when conditions are met – they’re blockchain code we can deploy but are not tokens in that case)
So, in 2020, digitized shares are a smart contract (blockchain program) and we call those smart contracts “tokens” or “security tokens”?
Exactly. Tokenization is the process of creating the digital class of shares. And an EMD such as TokenGX sells those tokens as investment securities for RealEstateCo Inc., they’re called security tokens or digital securities. In broad terms, regulators have even called digital securities cryptoassets because we blockchain technology uses cryptography.
Sounds Easy! Can tokens do more?
So much more. If a condo of a 1,000 sq.ft. was tokenized with 1,000 units, owning 50 unit (i.e. 50 shares) would entitle you to own 50 sq.ft. of the condo’s value or even monthly rent. If the condo rents out for $1,000 per month, your share would be $50.
Who creates the code for the security token?
The TokenFunder team programs and deploys the token. It takes considerable technical expertise to get it right.
How can I own a security token?
This is where the magic happens with programmable securities. Since ownership is about having the right to transfer that asset to someone else, we need to tell the token that you own it. We do that by registering the public address of a digital account you control in that token. If you own 1,000 shares , we’ll register you as the owner of 1,000 shares.
What does a public address of my digital account look like?
It looks something like this: 0x3019603fd444229d85a97b744B8C0006646d3aaC
When you have the secret passphrase (usually a sequence of 12 or 24 words) to that account, you control the account. Again, we take that address and register it in the token with the amount of shares you own. That’s called distributing the shares. We distribute them to your public address so that we don’t ever have to know your passphrase. And so, we don’t have custody of your assets, only you do. Your keys, your assets.
Is that it? My address gets registered by the token smart contract?
Not quite. When you completed your KYC (“Know-Your-Client) and you created or registered your public digital account with us, we registered your address in the a KYC Whitelist identity smart contract. The token autonomously checks against the KYC list every time someone sends it instructions to make sure you’re allowed to be an owner. We won’t go into technical details but the token only recognizes valid addresses in the KYC list as owners. And that means that future owners must be KYC’d as well. Be build investor protections and securities regulations right into the token smart contracts.
How can I trade?
We’ll cover trading more in subsequent issues but here’s what you need to know: the token smart contract accepts instructions to transfer units of the token only from the token holders themselves. Those registered digital accounts use their secret passphrase (or private keys) to sign a transaction instructing the transfer. Now, that’s smart!
Is that why when TokenFunder did Canada’s first initial token offering on the Ethereum public blockchain with smart contracts, the core modules were referred to as the Smart Token Asset Management Platform (STAMP)?
Congratulations… you’ve made it this far, and we want to reward you with your own free digital assert account!
Sign up at TokenFunder.com/signup and click the Account tab.
For a more discussion about the future of digital assets, we recommend reading the “Digital Asset Outlook”
2. TokenFunder Launches Nest Capital Mortgage Investment Corporation Investment Offering
February 25, 2020: In an environment where public market returns are low, investors are seeking higher yields from private market investments such as real estate, TokenFunder makes it possible for everyday investors to access wealth-generating opportunities that were previously restricted exclusively to high-net-worth individuals.
With this announcement, TokenFunder further positions Canada as a leader in regulated digital assets.
With Canada’s only approvals to issue and trade digitized securities on a public blockchain, TokenFunder’s unique regulatory-compliant platform is the outcome of over three years of regulatory advances supported by the Ontario Securities Commission LaunchPad.
3. BIS Quarterly Review: “On the future of securities settlement”
March 1, 2020: The Bank for International Settlements released its BIS Quarterly Review. The segment called “On the future of securities settlement” presents the massive opportunity to transform securities into digital tokens.
“Tokenisation” is a new buzz word in finance. Incumbent financial institutions as well as new entrants are investing heavily in projects seeking to transform securities into digital tokens – digital representations of value that are not recorded in accounts. A key motivation is to lower the estimated USD 17-24 billion spent annually on trade processing (Broadridge (2015)). Tokenisation could also transform how the underlying risks are managed.
The trading of public market securities is a complex system and while the report is a heavy read, it details the significant potential for realizing efficiencies for public market securities settlements. There’s no doubt that tokenization and digital assets are the future, and the BIS presents it effectively.
TokenFunder’s View : We’re making tokenization easy today in the private market.
The private markets, also known as alternative investments, on the other hand are slow, generally illiquid and therefore inefficient. They are still often served with PDF e-signed share certificates.
By starting out in the private market, TokenFunder is realizing the efficiencies of tokenization today, by digitizing those securities on a public blockchain and making the service available for issuers at disruptively low fees.
Investors on the TokenFunder platform invest with now fees. They will receive their share distribution in the form of digitized shares in their digital wallet. The Offering Memorandum outlining the shareholders’ rights are still filed with securities regulators.
4. TokenFunder Referral Program – “Better with Friends”
Finally, we all know TokenFunder is better with friends. We’re beta testing our FreedomX trading marketplace and want you to help us. Invite your friends and get involved!
- Signup on TokenFunder.com
- Request your unique referral URL from email@example.com
- Share your unique URL with (real) friends. Feel free to use social media. When 10 friends signup, we’ll invite you to the FreedomX beta.
Note: The Referral Program is subject to TokenFunder/TokenGX discretion and securities regulations.
Join us at TokenFunder.com/signup.
Have questions? Get in touch firstname.lastname@example.org