Introduction to Tokenization: How It Works and Its Benefits

Like traditional values, a Security Token is a financial instrument that represents an ownership interest in an asset, only one that has been created digitally, or tokenized, to unlock the power of blockchain. In a nutshell: the Security Tokens are digital representations of values in the blockchain. Like traditional securities, security tokens are subject to regulation and must conform to strict compliance standards.
So why tokenize a security? It all boils down to the power of blockchain.

With the Tokenization, many of the traditionally laborious and manual processes involved in the introduction of securities in public and private markets can be transferred to the blockchain and be automated. This benefits issuers and investors in a wide variety of ways, from increasing efficiency to reducing the margin of error, ultimately leading to significant cost reductions.

La Tokenization it also has the potential to transform the market by opening up investments to a wider global set of investors and facilitating the innovation of new product offerings. Precisely because of their digital nature, Security Tokens not only can they represent the ownership of traditional assets such as stocks or publicly traded bonds, but also traditionally illiquid assets such as private placements, real estate such as Tokenized properties from Reental, or works of art.

We leave you here our article so you can learn how to How to tokenize a property.

5 fundamental aspects for tokenizing

Ecosystem assembly
‍
The entire tokenization process is not limited to the creation of tokens. Issuers must think about the full lifecycle of digital assets and ensure that every piece fits, from start to finish. The issuance of tokens requires a network of KYC/AML providers, law firms, stockbrokers, escrow agents, cap table management providers, advisory partners, and others.

‍
Creation of security tokens
‍
Once an increase has been structured and an ecosystem has been mapped out, it's time to set up a security token. Regardless of the type of asset, the token configuration should be simple and intuitive. Create security tokens that can programmably apply jurisdictional regulations directly through the use of blockchain.

Compliance Setup
‍
Automating compliance is one of the main benefits of blockchain, and some studies indicate that blockchain can reduce compliance costs by up to 50%. For optimal efficiency, a tokenization platform must allow for faster processing and lower protocol fees that can scale as demand and regulatory complexity grow.


Token distribution
‍
Token distribution is the process of transferring tokens or funds to their recipients. Asset distribution on blockchain offers issuers an automated and notifiable way to manage both the initial distribution of tokens and future distribution events.


Execution and management of corporate transactions
‍
When managed through legacy processes, company operations are complex, laborious, error-prone and costly. Blockchain technology improves the execution and management of company operations through automation and transparent record keeping. The quick and easy issuance of dividends, the generation of reports and the management of new investors also facilitate prosperity in the private market, allowing for a path to liquidity.

Now that we know the key points of tokenization, let's look at its main advantages.

The use of blockchain technology provides greater efficiency and reduces errors in the creation, issuance and management of securities, which ultimately also reduces costs. But tokenization is also profitable in other ways.

La Tokenization it also increases the liquidity of traditionally illiquid and non-fractionable assets, such as real estate. For investors, this means greater democratization and the ability to diversify their portfolio with access to assets that were not previously available.

Although the list of advantages of the Tokenization It is long, the following are some of the main advantages of taking advantage of technology blockchain promises to offer issuers and investors:

Increased efficiency: the use of blockchain technology eliminates the need for legacy intermediaries, resulting in a reduction in settlement time and cost savings for issuance, as well as other processes (i.e., corporate actions, reconciliation).

Cost reduction: automation, transparent record keeping and reliance on the public Internet lead to significant cost reductions, with blockchain reducing bond issuance costs by up to 90%, while reducing fundraising costs by up to 40% compared to traditional private placement.

Better compliance: The financial sector spends 181 billion dollars a year on compliance, but blockchain reduces the risk of error and makes it cheaper and easier to manage complex compliance requirements by programming compliance rules directly into each token.

Improved liquidity: It is estimated that there are 4 trillion dollars locked in private capital and trillions in real estate, but tokenization opens up assets to a group of global investors and provides a way to trade previously illiquid or non-fractionable assets (such as private placements and real estate).

Increased transparency: The blockchain promises to provide a golden source of truth for all parties to trust, helping to keep the capitalization table up to date and reducing disputes over record keeping.

Facilitated innovation: programmable contracts and shared ledgers can create fractional real estate, liquid income sharing agreements, dynamic ETFS, and other previously unmanageable offerings.

In order not to miss any of the opportunities we present, we recommend that you join our group of Discord or Telegram To get to know others Reentels and the whole team. Of course we invite you to take a look at our articles on the blog to continue informing you.

Welcome to the new way of doing finance, welcome to Reental.