My focus of late has been totally on the CCIV and Asset Tokenisation.
The CCIV is the new Australian corporate investment vehicle called the “Corporate Collective Investment Vehicle”.
Tokenised Assets are any assets that can be divided into fractions to satisfy multiple owners.
Tokenisation of artworks and digital trading cards were the first assets to be tokenised on the blockchain. They are the early adopters.
The assets that are next in line for tokenization are property, equipment, business assets, vehicle ownership, loans, artworks, mining and intellectual property rights and any other asset class where ownership is divided equally into fractions.
Capital Raising Platforms
I was reflecting today, after a demonstration of a UK capital raising platform connected via APIs to both the regulator and the blockchain, and was reminded of a time when unless you were a listed company, your share register was either on a piece of paper or in an excel spreadsheet at your Accountants office.
Looking around the world, multiple start-ups are creating share registry platforms for start-ups and larger companies. Many have the ambition to eventually connect their platform to both the regulator and the blockchain if tokens are involved.
We have several in Australia that have already integrated with ASIC via APIs, which adds a lot of efficiency and convenience for those using the platform.
Connecting a share registry to the blockchain, though, is more complicated, especially if details need to be instantly passed back to the regulator via APIs. I’ve worked with solutions that do this, and it is very empowering to see it in operation.
The diagram above shows the links in the chain between the Funding Platform or Capital raising process and the Regulator AND between the capital raising process and the Blockchain. As you can see, there are responsibilities and data in both directions that need to be organised and synched. Not an easy task.
Step-by-step process to tokenise a regulated security
The following is the process I see for an asset-backed token raise, accepting FIAT currency at the front end and issuing and managing tokens at the back end on the blockchain.
- ACQUIRE: First, you need to have control of the asset you wish to tokenise so you can raise money against it. This could be a property or real estate, a financial security or instrument, some form of a physical commodity (like a precious stone), a work of art, something collectible, maybe valuable intellectual property or cryptocurrency. At this stage, you would also assemble the parts of the ecosystem you will use for this tokenisation process.
- ALLOCATE: Next, you need a regulated entity with an appropriate disclosure document to receive investment funds into. For Australia my suggestion would be a CCIV Sub-fund with a disclosure document to match. At Raiseworth, we have a 9 step process for the raising of funding at this stage that is independent but essential to this process. This will include KYC/AML and other verification processes needed for onboarding. For other jurisdictions, there are similar investment vehicles that can be used.
- ISSUE: Shares will be issued by the Corporate Director of the CCIV for investors in the relevant Sub-fund and recorded as investment funds received relative to the conditions or terms of the disclosure document.
- TOKENISE: As you are fractionalising an asset, the question of whether the token is a utility token or a security token doesn’t need to be considered. The optimal blockchain platform will have also been selected. Security tokens are configured and created on the blockchain to supplement the issued shares. Your lawyers will have already analysed the global or country legal regulations that apply to the asset being tokenised. e.g., ASIC or SEC financial securities regulations.
- OVERLAY: These tokens will have overlaid in their smart contracts relevant features like rights to income, capital gains, voting etc. They would also be configured to match the aspects of the tokens that supplement the characteristics of the shares. Compliance rules also need to be set. In addition to the token having the share attributes overlaid on it there will also be a tokenomics model created for the tokenized asset. This tokenomics model will define the token supply, token value, and the rights associated with tokens and the assets represented.
- LIST: The token will be distributed and listed at this stage. This could be on a centralised or decentralised exchange in a jurisdiction that allows it. This is essential to enable tokenized asset trading on a secondary market.
- MAINTAIN: As transactions occur, they are replicated back through the system all the way to the regulator. This level of integration is difficult to achieve but possible.
In the near future, all assets of value will be tokenised and recorded on the blockchain. Because of the legitimacy of the blockchain, it will no longer be necessary for the regulator to run their own centralised register. The regulator will also check the information they need from the blockchain.
Blockchain and Digital Ledger Technology
Blockchain technology is at present transforming financial markets globally. Startup after startup is working out how they can eat their banking and financial institutions’ lunch. This is true for both financial products and market infrastructure used to run financial institutions worldwide.
The digital representation of real assets on a distributed ledger or, in other words, the tokenisation of assets is the main part of the revolutionary potential of this technology.
While it is early days for both the technology and the practice of tokenisation, there are already well-documented advantages:
- divisibility or the splitting of assets into nearly unlimited portions
- automation driven efficiency gains are achieved with smart contracts
- immutability allows the history of tokens to be tracked, and if fraud occurs the tokens can be found and returned to their rightful owners
- cryptography ensures that confidential information is kept confidential
- fewer intermediaries or the removal or disintermediation of middlemen
- no need for trusted parties as the blockchain provides authenticity
- improved transparency ensures compliance with regulations, reduces fraud with asset ownership and increases issuer and asset owners’ confidence
- better tradeability of assets
- more efficient transaction clearing and settlement
CCIV Next Steps
The new Australian CCIV is a great next step to enabling the recording of regulated securities on the blockchain through tokenisation.