Asset tokenization explained: opportunities & effects

Asset tokenization explained

Tokenization is a powerful use case for the blockchain. But what exactly is tokenization, what happens when we tokenize, and what are the benefits? Why tokenize and not leave well enough alone?

Tokenization is the process of representing an asset, physical or virtual, real or imagined, as a digital instrument, and housing it on a blockchain.

Examples of real physical assets include commercial real estate, paintings, sculptures, literature, printed music scores, gold master records of songs and movies, paper certificates of shares in a company, etc. Real virtual assets include audio and video files (of songs and movies), images (of art and sculpture), ebooks or pdf copies (of books and articles), and electronic shares in a company. Imaginary assets are those that do not have a real-world basis, such as cryptokitties and game characters.


What exactly happens when we tokenize an asset?

Representing an asset as an abstract digital representation is the most trivial form of tokenization, which begs the question, why bother? More sophisticated forms of tokenization would include other attributes that are not overtly or explicitly present in the original asset.

Here is a description of the increasing levels of sophistication in tokenization, offered merely to provoke some thought:

     0. No extra attributes or properties in the token besides being a simple representation of the asset.


  1. The token includes some basic information such as the name of the owner and timestamp of creation of the asset and the representing token(s).


  1. The token includes all or most of the information in Level 1, plus details about the owner, provenance of the asset, mechanism for verification of the owner’s ID as well as the authenticity of the asset, and mechanism to validate the authenticity of the representation of the asset by the token.


  1. The token includes all or most of the information in Level 2, plus valuation of the asset and price basis of the token. Valuation can be quite complicated, as in the case of company shares, bonds, real-estate assets. Pricing can point to the price history of trades (and possibly other data such as volume).


  1. The token includes all or most of the information in Level 3, plus the rights and restrictions on transfers and trading of the token. For example, tokens that represent company shares may include voting rights, dividends or revenue share, right of first refusal, tag along rights, drag along rights, and effect of corporate actions, etc.


  1. The token includes all or most of the information in Level 4, plus support for defending regulatory challenges about compliance with any applicable laws.


KoreTokens are designed to function at Level 5.


Final insights

When it comes to what is asset tokenization, a lot of issues come into discussion. One of them is that tokenizing assets transforms both tangible and intangible assets into secure digital tokens via blockchain, revolutionizing traditional asset management.

It not only enables fractional ownership and expands investment opportunities but also enhances market liquidity and transparency.

From simple digital representations to meeting regulatory standards, each tokenization stage reinforces the digital identity of assets, securing trust and authenticity.

KoreTokens stands at the vanguard of this progress, showcasing the comprehensive capabilities of asset tokenization.

Tokenization: Navigating the Friction between Reg A+, Web 3.0, and Today’s Transacting Landscape

Web3 technology, which is based on blockchain and decentralized systems, introduces unique challenges when it comes to complying with regulatory frameworks like Regulation A+ (Reg A+). 

Reg A+ is a regulation that allows companies to raise up to $75 million from the public through a streamlined process, similar to an initial public offering (IPO), but with certain exemptions.

One of the key requirements of Reg A+ is the need for an SEC-Registered Transfer Agent—a designated entity responsible for maintaining a book of records that tracks ownership and transfers of securities. The Transfer Agent ensures compliance with regulations, such as recording share ownership changes, processing transactions, and maintaining accurate official records.

However, Web3 was not designed with this requirement in mind.  The concept of a centralized Transfer Agent is difficult to reconcile with the decentralized nature of blockchain technology. Here are a few reasons why Web3 poses challenges for Reg A+ compliance:

  1. Custody and Ownership: In Web3, users typically control their assets and interact directly with decentralized applications using their digital wallets, and transactions need not go through a central intermediary to be validly recorded in the blockchain. This introduces complexities in determining ownership and custody of securities. The traditional role of a Transfer Agent, which maintains custody and records ownership in a centralized manner, is not easily replicated in a decentralized environment.
  2. Decentralized:  The main thesis of Web3 is that it operates 100% decentralized, in its operations and data management.  This is in complete conflict with how the regulations like RegA+ have been written by the securities regulators.
  3. Anonymity and Compliance: Web3 technologies often emphasize user privacy and pseudonymity, which can make it challenging to meet the regulatory requirements for identifying and verifying investors participating in a Reg A+ offering. Ensuring compliance with Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations becomes more complex in a decentralized and anonymous environment.
  4. Regulatory Oversight: Reg A+ requires regulatory oversight and reporting to ensure compliance. In a Web3 environment, where transactions occur directly between users without intermediaries, it becomes more difficult for regulatory bodies to monitor and enforce compliance effectively.

While Web3 technology faces challenges in directly implementing a Transfer Agent-like function for Reg A+ compliance, it’s worth noting that the technology is still evolving. It is just not here today, and bringing together governmental regulatory oversight and web3.0 looks to be a ways off.

Efforts are underway to address some of these challenges through the development of decentralized identity solutions, regulatory frameworks for digital assets, and the exploration of hybrid approaches that realize the benefits of Web3 while meeting compliance requirements.

Ultimately, striking a balance between the decentralized nature of Web3 and regulatory compliance will require further innovation, collaboration, and regulatory adaptations to accommodate the unique characteristics of blockchain-based systems. 

So for today if you wish to transact and tokenize your digital assets, and most importantly transact utilizing RegA+ you can; just not yet with web 3.0,  and digital wallets in a decentralized blockchain.  

KoreChain is the solution for today and ever-evolving for tomorrow.