How does FINEXITY tokenize tangible assets and other alternative capital investments?
Alternative investments are an attractive investment option, especially in times of high inflation, turbulent stock markets and interest rates that are still constantly low. This is because investments — in particular collectibles such as art, fine wine or classic cars — have a very low correlation with the markets, offer attractive return prospects and offer excellent inflation protection. Find out how FINEXITY tokenizes alternative capital investments and what benefits this “denomination” of assets offers investors.
Many investors would like to invest in real estate, a luxury watch, a classic car or other high-priced tangible assets — but do not have sufficient liquidity. Or do not want to tie their capital to an asset class in the long term for personal reasons. In the past, there was only “all or none” for investors in this case. In other words, take the risk and invest money in a tangible asset over the long term — or miss out on potential return opportunities in this asset class. Today, however, real estate or collectibles can also be purchased “pieced” or tokenized. This means that private investors can invest in various alternative assets via portals such as FINEXITY with little capital investment and thus build up a diversified portfolio.
What is tokenization?
Tokenization is the division of assets into digital units, which are then stored or traded on the blockchain. In principle, tokenization is not limited to digital objects, but can also be applied to many forms of tangible and intangible assets — regardless of whether they are real, rights or receivables, movable or real estate. Tokens are now available in a wide variety of uses and appearances. These include cryptocurrencies such as Bitcoin, whose price is highly volatile, but also security tokens (tokenized investments that comply with applicable securities regulations), NFT (non-fungible token) or utility tokens, which give the owner access to certain services or products.
FINEXITY uses strictly regulated security tokens for the digital “denomination” of tangible assets via a so-called SPV (special purpose vehicle or special purpose vehicle). Both the ones on the Products offered by FINEXITY Marketplace, as well as the technological implementation meet the highest regulatory framework conditions.
In detail:
- realty are tokenized via an SPV that was founded with the purpose of holding real estate. The tokenized, digital shares of the property (special purpose vehicle) can be issued and traded from then on.
- works of art are also tokenized using an SPV. Unlike real estate, there is no land register for works of art. Nevertheless, FINEXITY uses the structuring options offered by a special purpose vehicle and issues digital shares based on the works of art.
- When tokenizing Classic Cars and Young Timers The value of the asset is also structured in an SPV. As with real estate and art, the special purpose vehicle is used to issue digital shares and structure partial ownership.
As part of tokenization, a digital share corresponds to a token. If, for example, the value of a property is tokenized, many private investors can purchase digital shares in the property. Each token owner then participates in the return opportunities of the property according to their number of tokens.
The role of the Ethereum blockchain
As the basic technology for tokenizing tangible assets, FINEXITY uses the Ethereum blockchain and the ERC-20 token standard, which, by the way, should not be confused with Ether — the cryptocurrency of the Ethereum blockchain. ERC-20 tokens only use the Ethereum blockchain to process their transactions and payments. It says ERC for “Ethereum Request for Comments” and the number 20 for the standard's unique identification number. ERC-20 is therefore a standard protocol that specifies the rules and functionality of a token on the Ethereum blockchain.
For token issuers, ERC-20 therefore has the great advantage that they do not have to program their own blockchain solution, but simply use the solution offered by Ethereum.
The ERC-20 standard forms the basis of every fully functional ERC-20 smart contract. The smart contract can issue tokens and constantly monitor their supply, circulation, and balances.
Smart contracts: fast, secure and cost-effective
Put simply, smart contracts are so-called “if-then” rules that determine which activity is carried out when a specific event occurs. In the case of a tokenized property, the if-then rule could be as follows: If a certain number of Ether flows to the address of the smart contract created by the seller, the Ether's address receives a correspondingly defined amount of tokens that represent ownership shares in the property. Ownership of the real estate token, to which the owner's address is assigned on the blockchain, entitles you to automatically receive part of the rental income or sales proceeds at a defined time.
Smart contracts offer several advantages when tokenizing tangible assets: Since processes run automatically, no intermediaries such as notaries or banks are required. This saves time and money and thus optimizes the return perspective of an investment. Smart contracts are also not corruptible and self-fulfilling because parameters and conditions are clearly defined and the contract terms are enforced autonomously.
