Tokenization is changing the economy as we know it drastically. Token technology enables organisations to exchange value peer to peer on-line, and can potentially replace existing financial services by decentralised solutions. Society is transitioning to the next level: high-definition economics. Tokenising assets, including real estate, companies, art, or digital assets, means lowering costs for issuers, but also improving transparency, efficiency, and liquidity of real-world assets. Non-Fungible-Tokens (NFTs) have been taken the world by storm. The ultimate deliverable of 2Tokens is a set of clear rules and guidelines on how to deal with tokenization. Together with relevant industry partners, we aim to achieve a common perspective and understanding of the benefits for society. With that, we want to inspire change.
2Tokens engages with existing businesses, academics, and regulators to help them understand the added value and potential of tokenisation. Different working groups have achieved a trusted, multi-disciplined research centre documenting token applications, best practices and use cases in Europe which have been documented and shared to the public for everyone to learn more about tokenisation. We understand that to achieve widely supported token regulation; we have to raise awareness, stimulate discussions and bring together knowledge and expertise. Allowing us to reduce the barriers to the adoption of tokenization and help realize the broader societal benefits. To that end, 2Tokens is organizing round table sessions.
"Tokenization will transform our economy in the same way that stocks and stock markets did in the 17th century. For a digital stock exchange such as Nx'change, it's important that we create the right environment for these innovations to happen – so it's great that multiple parties have come together to do whatever it takes to realize this potential" – Marleen Evertsz CEO/Founder of Nx'change and board member.
During the first 2Tokens Round Table sessions, a group of selected professionals from legal, finance, regulatory, and industry discussed why we need tokenisation, what is required to achieve value from tokenisation, and how we should move ahead with it. In the upcoming sessions this spring, the 2Tokens working groups will share the learnings and dilemmas with the attendees. Many aspects of the token economy will be discussed.
Business models: What economic value does token issuance bring for companies? Is there a need for another funding source or are existing options sufficient?
Legal frameworks & responsibilities: Due to its decentralised nature, tokens come with problems such as market manipulation and insider trading. What standards should companies adhere to when using tokens and how can consumers, investors, as well as the company itself, be protected against malicious behaviour?
Global token standards: How can we get a token reference framework and market standardisation, so industry players know what rules to play by? How do we ensure regulation on a supranational level, preventing companies from dealing with competing and contradicting rules?
Impact on society: What are the killer applications for tokenisation, and how can we help organisations understand the implications and opportunities widely understood?
Go-to-market strategy: Existing regulations tend to stifle innovation fortokenised initiatives. Existing fee models tend to diminish the benefits of the blockchain ideology in favour of current models by existing organisations. How can organisations stand a chance while sticking to the (existing) rules?
Quality versus speed: New regulation such as the proposed MICAr is vital to enable innovation. Some jurisdictions are creating an arguably lower-quality regulatory framework, while others take the stance of quality over speed. How to combine quality and speed to remain competitive as a jurisdiction?
Decentralised finance: What is decentralised finance (DeFi), what are useful applications, and how can the community raise awareness for the disruptive market forces of decentralised finance?
Token financing simplifies raising funds across borders, opening up new markets, and with that, potentially new customers. It allows for more complex actors to be involved in a value chain. Fractionalisation of assets will enable redistribution of wealth as anyone with a smartphone, internet connection, and some funds in a currency can participate in a raise. Although (new) investors participating in fundraising can originate from anywhere in the world, it becomes easier to comply with various regulations as value flow can be easily tracked. Specialised tokenisation platforms such as Tokeny, Bondex, or Nx'change offer easy-to-use tools to deploy a security token, verify investors and raise funds. As the 2Tokens working group Next Generation Capital shows, the impact of tokenisation on society is big. When asked about their view of tokenisation Daniel Coheur said: “Tokeny’s mission has been from its inception to educate the market in order to accelerate blockchain technology adoption. After having tokenized more than €25B of assets from debt to equity to investment funds, Tokeny will share its expertise in order to explain the challenges but also the opportunities laying in front of what is likely to become the future of the finance industry.”
Tokenisation will fundamentally change society. Decentralisedfinance will enable financial inclusion for all people around the world. With approximately 2billion unbanked, that is a huge opportunity. The 2Tokens working group Energy Token shows how small private investors join large solar energy projects on the other side of the world, providing more and easy ownership of assets while increasing transparency and traceability using uniquely identified assets. Companies such as Wien-Energie, Catena, and Sunified are doing it today.
Any industry confronted with disruptive technology faces the challenge of establishing a legal framework that sets the rules of the game to protect investors, consumers, and companies and get rid of bad actors. The same applies to the token economy. A legal framework gives trust and, if developed correctly, can integrate the 'old' and the 'new' world, resulting in increased adoption and innovation by industry players. A clear legal framework will also offer financial stability for those companies that do take the leap. As long as they can be aware of what is expected from them, they know what to do.
When discussing token standards and regulatory frameworks, it is crucial to be aware that the industry is still young and will change over time. When developing regulations, allow new initiatives to play round in regulation-free sandboxes. To strengthen the development of useful regulation, stakeholders work together around several tokenised use cases to learn from the entire process and consider the lessons learned. The 2Tokens working groups are multi-disciplinary teams that guide decision-makers and taken them by hand to show the importance of a token-friendly regulatory framework. This might be a slow(er) process. Still, it prevents going with the hype or trying to adapt existing or already planned regulation on a new situation.
A changing regulatory framework is necessary, but unfortunately, in multiple jurisdictions across Europe, the developments of such a framework is a slow process. This can be due to incumbents slowing the process as they see what is at stake (e.g. no bank accounts for companies working with tokens) or because regulators are not seeing the urgency (e.g. because the economy is doing so well). What standards should companies adhere to when raising funds using tokens and how can consumers, investors, as well as the company itself, be protected against malicious behaviour?
Tokens are changing society. It has the potential to open up thefinancial system to anyone around the world, as long as the infrastructure to exchange those tokenised assets is there. For adoption it is important that thecommunity and regulators work together to develop clear standards and regulatory frameworks. A robust regulatory framework will reduce regulatory risks, it will enable innovation by providing clarity around the rules of tokenised ecosystems, and it will allow incumbents to open up for new companies. Standardised taxonomy and terminology and education of stakeholders is vital in achieving this.
Authors: Alex Bausch Chairman 2Tokens, & Dr Mark van Rijmenam
This article also appeared in Digital Bytes, a weekly newsletter by Jonny Fry of Team Blockchain.