August 18, 2023

Complexity Of Fractionalisation

by Soham Panchamiya and Pankhuri Malhotra

in Articles

Tokenisation, powered by blockchain technology, has emerged as a transformative application with the potential to revolutionise various industries. This involves converting assets into digital tokens, enabling fractional ownership and offering novel advantages to participants.

(1) Real estate, a traditionally exclusive and expensive investment avenue, becomes more accessible through tokenisation. Fractional ownership allows individuals to purchase small portions of properties, diversifying their portfolios and breaking down barriers to entry. Moreover, tokenisation streamlines the cumbersome and paper-based process of property transactions, reducing the time required and enhancing trust and transparency. By increasing liquidity, tokenisation holds the potential to revitalise the real estate market and make transactions frictionless.

(2) The business world also stands to benefit from tokenisation. Franchise opportunities, often associated with substantial costs, can be made more affordable through fractional ownership achieved via tokens. This removes financial barriers and expands opportunities for entrepreneurs.

(3) Tokenisation offers a fresh approach to crowdfunding, enabling entrepreneurs to reach a broader range of investors and enhance liquidity. It can also accelerate the initiation of infrastructure projects, particularly in the renewable energy sector, by attracting new funding and driving down costs.

(4) Tokenisation has even made its way to the entertainment industry. Through tokenised assets, passionate fans can now invest in film productions, music rights, and other creative endeavours. This empowers content creators, allowing them to retain control and take risks outside the confines of traditional intermediaries. Notably, tokenisation has facilitated the sale of animated series like Stoner Cats, which sold out in just 35 minutes, providing fans with a financial stake in their favourite creations.

While tokenisation holds immense potential, challenges remain:

– Fragmented regulatory frameworks worldwide hinder entrepreneurs seeking to embrace this technology.

– Limited historical data and volatility in the market further complicate adoption.

Most importantly fractionalising using blockchain technology =/= crypto.

The question of whether the fractionalised token of a piece of property or IP is a security or commodity is irrelevant – the answer is it is a security. When you’re dealing in securities, you are dealing in one of the more complex and complicated legal and regulatory landscapes and having effective advisors and lawyers guide you through this process is not only important, but essential.

Some projects can be bootstrapped with 4 coders in a garage, and others are complex enough to necessitate the use of multi-jurisdictional teams of experts to bring them to reality. If you’re thinking about fractionalising assets, think carefully and plan strategically.

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