Luther’s Platform Fuelling TOKO’s Tokenisation Engine
To start, we need to first understand what an issuance process looks like...
When a financial institution issues a new financial asset, it decides on the parameters of the issuance (such as size, dates, initial investors and jurisdictions). This process involves a number of different entities, including Brokers, Exchanges, Custodians, Registrars. Each of these participants performs a certain task to allow for the complaint issuance of the asset. Our client advises the issuer on the adherence of the issuance to compliance rules and regulations for the various steps of the process. After the verification process is completed, the financial institution issues the assets and transfers those assets to the relevant investors.
Law firms advise their clients on the rules and regulations around the financial asset issuance process and the compliance and regulatory requirements associated with the process.
Problems with the issuance process
However, the issuance process is costly, as asset issuance is regulated by a series of financial regulations and compliance rules. The checking and verification of the asset issuance is highly manual and requires a high number of people. It is also very time-consuming as the process can take up to several months. Further there are multiple documents in the process that are still in paper form and non-standard.
Consequently, this results in high costs incurred by the client and lost profit.
Tokens have emerged as a step toward solving the problem of high costs and inefficiency in digital asset issuance.
Additionally, there has also been an explosion of interest in the topic of digitizing asset issuance. Back in February this year, Mike Winkelmann sold an NFT art for $69m that signalled the beginning of a huge spike in interest toward NFTs in the context of art. More recently, eBay just allowed the sale of non-fungible tokens (NFTs) on its platform, and Merriam-Webster Dictionary has announced that it is auctioning the definition of an NFT.
In order to understand what this all means, we need to first understand what a token is, as tokenisation is a major component of asset digitization.
What is a token?
Tokens are gradually emerging as a new asset class that offers a new way for corporates to raise funds using their high-value assets. Regulatory bodies, law firms, custodians, broker/ dealers and exchanges across the world are gearing up in preparation for the acceleration of this revolution. Compliance rules and licenses are evolving but remain stringent in order to provide sufficient support and protection to issuers and investors.
Owning a token means having certain rights to the asset. The simplest forms are ownership, or a share of ownership which the owners are entitled to voting rights, dividends, coupons and so on.
When a financial institution transfers assets to the respective investors, this often represents a fraction of the asset. And the digital version of this fraction is a token.
A digital asset can either be tangible, (examples of which include real estate or wine), or intangible (examples of which include intellectual property and equity), or digital (an example of which is digital art).
Luther’s platform fueling TOKO’s tokenisation engine
While tokens are an integral part of solving issuance inefficiencies, there remain multiple problems with the issuance process, primary among them is the standardisation and automation of the steps and participants involved in the issuance process and the enforcement of compliance rules as the process is executed at each step.
This is why TOKO plays such an important role in solving these issues.
TOKO differentiates itself from other tokenisation engines in the market as it is an initiative led by a law firm which does not only provide the technical solution, but also the legal and compliance advice from papering traditional funding raising documents, prospectuses to regulatory requirements of digital assets and security law. By defining investment rights and embedding them into the “smart contract” living on the blockchain, the total solution assures investors of a trusted representation of their rights.
On a technical level, processes and integrations are essential in issuing digitized assets, which include financial assets, commodities, real estate, art, music and wine. Luther has also adopted a combination of token standards and technologies to ensure an efficient and transparent consensus for every transaction.
With TOKO, corporates can leverage on their traditional assets and raise funds at a premium through their digital representation. The 24/7 market, low commission rate trading and high liquidity of their digital assets bring new opportunities to professional investors in a secure and regulated environment. The first project of TOKO was the tokenization of an art piece with high growth potential.
Luther’s platform, LEIA serves as the operating system driving the asset issuance process forward
Through Luther’s compliance checking and verification modules, our customer was able to automate the asset issuance process across its multiple participants. Further, they were able to codify rules and regulations in the context of issuances of numerous asset classes across global financial markets.
Luther’s platform serves as the operating system providing the rails for automating the issuance and compliance process. In order to achieve this, we developed an engine that digitizes the issuance of and automates the compliance checking of various financial assets.
This led to automating the issuance of financial assets and managing compliance rules that massively reduces operating costs and processing times.