Asset Tokenization — the industry of the decade, the software you need to do it, and how to get it.
Here’s a random quote from the Internet (when you search for “asset tokenization market size” ):
With a 50-fold increase predicted between 2022 and 2030, from US$310 billion to US$16.1 trillion, tokenized assets are expected to make up 10% of global GDP by the end of the decade.
Source: https://www.marketsmedia.com/asset-tokenization-to-grow-into-16-trillion-opportunity-by-2030
Let that sink in for a moment.
Imagine
It does not have to mean anything; it’s just a prediction, but imagine it comes true, and imagine jumping on that ship on time.
Imagine the NFT pfp craze we saw for the last couple of years gets replaced by a tokenization craze — where instead of monkeys, aliens, or lizards, you own a piece of a private jet, a piece of Manhattan real estate, yacht, organic farmland, or a solar-powered EV charging station.
And imagine these tokenized assets generating actual, sustainable cash flow for you.
And imagine the regulatory bodies coming to “peace terms” with technology and finding a way to enable creative and savvy entrepreneurs to raise more capital and generate more returns for investors worldwide.
It’s a lot of “imagine” s, but, you know, 120 years ago, the Wright brothers were probably saying “imagine if we could fly” quite often.
We’re sure this got you thinking if you are someone with entrepreneurial inclinations.
Onwards to the real things.
Asset Tokenization Business Model Example
Let’s start by giving an example of an asset tokenization business and then tell you and show you what we’ve built. (Yes, we’ve created the software you need and will get to that (and how you can get it) in a moment.)
So, here’s an example:
- After running a business for a decade in the heart of London, Lisa and Jenny went to Hawaii on vacation; they liked it and decided to stay.
- Both Lisa and Jenny love sailing, so they start a sailing club.
- They bought a nice sailing boat, and they rented it to people. The business is doing good, and they would love to expand.
- Instead of getting a loan from the bank, they decide to tokenize their next boat.
- The new boat costs $1,000,000 US dollars, and it’s projected to earn $200,000 in profits per year for the next ten years. Now, that’s a mind-boggling 20% return and a great investment opportunity.
- After finalizing the regulatory paperwork, they decided to offer 10,000 LJYC (Lisa and Jenny Yachting Club) tokens to investors worldwide at $100 per token.
- Each LJYC token corresponds to 0.01% of the tokenized asset and is entitled to an equal share of the profits.
- Neilsen from Copenhagen likes what he sees and decides to invest $10,000 US dollars in LJYC tokens, so he buys 100 of them. A total of 1% of the supply. And so do many other people. Some bought just a few tokens; some bought 100s. But Lisa and Jenny managed to sell out all their tokens and have the money to buy the boat.
- A year passed, and the new boat indeed made $200k in profits, so Lisa and Jenny distributed the profits to the holders of the LJYC token, and Neilsen of Copenhagen received his fair share of 1%, equal to $2,000.
- The following year, Lisa and Jenny decided to buy two more boats and run another investment round.
- Ten years have passed, and the boat is ready to be sold. Lisa and Jenny liquidate the boat, and the proceeds are distributed to the LJYC token holders through the burning mechanism.
- And they all lived happily ever after.
You might be saying, “weeeeeellll, it’s just $2,000…. “so, please, let us remind you that an average return on a rental property, after property and income taxes, will, in most cases, hardly get you more than 6–7%. Or, to give you a translation, you will pay $300,000 for a rental and make only $18,000 on it. But that’s not the point of this article, nor are Jenny and Lisa real. :)
So, let’s look at what Jenny and Lisa need from the technology standpoint to get this done.
Software components of an asset tokenization business
By following the example above, we can make the following conclusions about the software Lisa and Jenny would need:
- They need a website where people can invest their money and mint their LJYC tokens.
- They need a smart contract that issues the tokens.
- They need to be able to do the KYC of their investors.
- They need an “admin panel” to manage things related to their fundraising campaign.
- They need to have a way of distributing profits other than manually sending thousands of transactions.
- They need an “investor panel” where people who invested in their business can see their balance and earnings and manage their investment.
- They need to be able to run multiple investment rounds.
Besides the software, they would need a lot of legal and technical assistance to make this happen, but that is a topic for another time. This story is, after all, an example, a high-level overview of how things would work. So with that in mind, let’s move on and take a look at what we’ve built.
Everyone, please welcome Caishen — an asset tokenization platform
We’ve named our software Caishen, after the Chinese god of wealth (all Roman and Greek gods were already taken :D.) Caishen covers all the technical aspects that we mentioned above:
- A smart contract
- An operator/admin panel
- An investor panel
- A website
Let’s take a deeper look into each of them, what they do, and how.
The website
Let’s start with the website. The website that comes with the platform is more of a technical demo that has all Caishen features implemented. And while you can use it and build your website by styling this template, you can also build your website the way you want it and use the Caishen demo as a technical guide and an implementation example.
So, how does the website work?
As with any other web3 website/dApp, your investors must first connect their wallet and sign a message. This signature allows Caishen to verify they own the address they connected with and create their investor account.
Next, investors choose the quantity of the asset tokens they wish to buy. Finally, the cost is calculated and expressed in USDT.
Before minting the tokens, the investor must approve the Caishen smart contract to spend their USDT. Once this is done, the investor can commence the mint transaction.
Here’s what happens in the mint transaction:
- Caishen smart contract will pull the approved amount of USD from the investors’ wallet to itself;
- If successful, the Caishen smart contract will mint the specified amount of asset tokens to the investor;
- Caishen smart contract will transfer the USDT amount it pulled from the investor to the destination address specified by the business entity tokenizing the asset. (Lisa and Jenny from the example above)
This completes the first segment of the process. At this point, the investor owns the tokens and can access the investor panel, but they are not KYCd yet, meaning they are not eligible for profits distribution.
The website then takes the investor through the identification process, where the investor can set their details and email address and upload their KYC documents.
Once this is done, it’s time for the token operators to take action. First, the operators will verify the investor’s identity and complete the KYC procedure. Once the KYC procedure is complete, the operators will prepare the legal documents/contracts and send them to the investor. Upon signing and returning the contracts, the operators will finalize the investor’s account, and their tokens are now eligible to receive earning distributions.
Enter the Operator Panel.
Caishen Operator Panel
First, why an “operator” and not an “admin” panel — because the smart contract and the investment round can be operated by multiple people/operators. Although there is an “admin” role, its primary function is to create new investment rounds and to assign operator rights to other accounts/operators.
On the other hand, the most important actions an operator can perform are marking an investor as KYCd and distributing the earnings/profits.
It is important to note that investors are not “marked as KYCd” on the application level but rather on the smart contract level. This means that the admin or the operator must send a transaction to the smart contract that indicates that the investor’s address is now KYCd and eligible for profit distribution.
So, once the administrator creates a new operator account, they must also authorize the operator within the smart contract by sending a transaction that will identify the operator’s wallet address as an authorized operator.
Let’s take a look at all features of the operator panel:
- Define investment rounds/series;
- Define platform operators;
- List all investment rounds;
- Look at all investors in a given investment round;
- Manage the investors;
- Mark an investor as KYCd;
- Download investors’ documents for in-house KYC document storage;
- See investors’ balance;
- See the investor’s payouts/earnings history;
- See investors’ email address status;
- Upload the contracts for investors’ signatures;
- Mark investors’ contracts as signed and upload their finalized versions;
- Distribute earnings to all eligible investors;
- See the earnings distribution history for each investment round.
The admin and the operators connect and log in to the operator panel using their web3 wallets.
Most of the features mentioned here are “standard stuff,” but the most exciting part is the earnings distribution. So let’s take a look at how earnings distribution works.
Earnings distribution
Earnings are distributed by the administrator or by any of the authorized operators. The earning distribution process begins by performing a “calculation” where the operator specifies the total amount of earnings to be distributed and the transaction cost per each payment.
For example, there is $10,000 to be distributed among 250 investors, and each investor will be charged a $10 transaction fee to receive the payment.
This “calculation” process will show how much each investor will be paid. The amounts are calculated based on the % share of the total supply of asset tokens owned by a single investor. Only KYCd investors that signed the contracts will be paid.
Once the operator reviews the “calculation,” he can distribute the earnings.
To distribute the earnings, the operator must have the specified amount of USDT in their wallet — 10,000 USDT in this example. The operator then approves the Chaisen smart contract of the tokenized asset to spend his USDT and then sends an earning distribution transaction.
The earning distribution transaction is sent to the Chaisen smart contract. The smart contract will then pull the amount to be distributed from the operators’ wallet, and then for each KYCd investor, calculate their share, deduct the transaction fees, and send the USDT to their KYCd address.
If earnings distribution is made while there are still investors that haven’t completed their KYC or legal procedures, not the entire sum will be distributed.
However, the operator must “send” the entire sum to the smart contract for transparency reasons. Still, the smart contract will only pay KYCd investors and return the unused funds to the operator. The operator can distribute these earnings to other investors once they complete the KYC process.
Each earnings distribution is recorded in the Caishen platform and on the blockchain. Earning distributions are visible to the operators in investment round management. Each payment made to each investor is visible on the investors’ profile (within the Caishen Operator Panel) and the Investor Panel.
Caishen Investor Panel
The Investor Panel is only accessible to investors, that is, to people who bought/minted the tokens of the tokenized asset.
Investors can access this panel as soon as they mint the tokens. Of course, accessing the investors’ panel and minting the tokens requires connecting their wallets.
The Investor Panel covers the following features:
- Token balance;
- Token status;
- KYC document upload;
- Email verification;
- Contracts;
- Personal information settings;
- And transaction history.
Since one investor can be a part of multiple investment rounds of the same business, the investor panel displays the relevant information, such as transaction history, contracts, and balances, based on the selected investment round.
It is important to note that the investors’ panel will distinguish between “pending” and “yield-generating” tokens. The difference is the investor’s KYC status. Once the investors are KYCd and sign the contracts, their tokens become “yield generating.”
Caishen Smart Contract
The Caishen smart contract is probably the most important part of the entire Caishen platform as it solves/takes care of several critical tasks:
- Token creation;
- Token sales;
- Revenue distribution;
- Investor KYC;
- Operator management.
Each smart contract instance represents a single investment round and has its token supply and price. Each smart contract/investment round is visible and manageable through the Caishen Operator Panel.
So, how does one get his hands on the Caishen Asset Tokenization Platform?
For those of you who don’t know, 0xRebels was born out of the WeAreSatoshis NFT collection, and software like Caishen is one of our ways of giving back to the community that supported us.
So, if you are one of the OGs of the We Are Satoshis community (minted a Satoshi and still hold it), and you wish to enter the asset tokenization market, all you have to do is let us know. We will get the Caishen platform and the smart contract up and running for you.
If you are not a We Are Satoshis OG, until Caishen becomes publically available, feel free to DM 0xRebels on Twitter to get started :)
Conclusion
We hope you enjoyed this article and that it sparked your imagination. We also hope that in the near future, tokenizing assets will become accessible, and it will become easier to comply with all laws, rules, and regulations in that field.
We know there are many questions left unanswered in this article. Asset tokenization is a vast field; many questions are worth asking and worth answering. We hope to cover at least some of them in future articles, but if you are an expert in this or a related field, please, don’t be shy; start a conversation in the comments.
We are grateful for the time you devoted to reading this article.
Until the next time,
0xRebels
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