In our last and also Divistock’s first article on medium, I discussed what is tokenization including the technical definition. Tokenization is the replacement of data with identifying symbols, which can be manifested as cryptocurrencies on a blockchain network. This can easily be done for traditional assets and legal agreements as well. But how can this be done exactly? What can and can’t be tokenized? And what are the easiest assets to tokenize or, in other words, what assets would benefit the most from this process?

Asset tokenization is probably the most lucrative form of tokenization, especially when this involves blockchain technology. This type of tokenization would best be fit on blockchain technology as you are resting the rights to an asset or agreement to a third party, and it can be assumed that most would rather this party be decentralized than not. So, with that in mind, how can asset tokenization occur on blockchain and how can it involve cryptocurrencies as well?

There is one way that asset tokenization could occur in an efficient and legal manner, unfortunately, this must involve a company to hold the assets I.E. their ownership to allow for the tokenization of such assets. With that clear, here is the best solution for traditional asset tokenization that Divistock has created. This may be similar to other solutions that aim to accomplish the same solution, however, this solution is still unique to Divistock.

For this solution, we will be discussing one in which a company tokenizes assets for third parties also known as its users. This must start with a user that wishes to tokenize their assets, this user must be some sort of legal entity, whether that be an individual, company, or other organization they must be an identifiable entity. This should be confirmed by the company processes the tokenization by assuring that

1. The entity exists
2. The person who represents the entity, if this is entity is other than that individual exists.
3. This person from the point above must be identified using legal documentation

Once all three are confirmed, then the user may submit information of the assets they wish to tokenize, this includes

• The names and type of assets
• Documentation of ownership by this user, this could be bank records, agreements and more.

It is now up to the company to investigate to make sure these assets exist and are owned by the user wishing to tokenize them. The company must also make sure that tokenization of these assets does not require any management of the assets to make sure that they are in a condition to be traded without inspection. If this were the case it should most likely be rejected for tokenization as it would cost more money to manage the condition and update it to make sure the information on the asset is up to date for anyone interested in the asset. An example of this would be real property or realty. If this were tokenized and ownership of it were submitted to a blockchain network as a cryptocurrency, those buying it would need to inspect the property as if they were buying a house, which largely defeats the purpose of asset tokenization’s efficiency. However, this could most certainly be possible with an asset such as a REIT, as this asset would not need to be managed by the tokenization company or any of its users other than the user who tokenized it.

Once the asset is confirmed to be eligible for tokenization by the tokenizing company, the company should submit agreements in order for this asset’s ownership to be signed over to either the tokenization company itself or to a holding company it has just enough control over to maintain efficiency with. Either of these two options can be used depending on how decentralized the company wants this solution to be.

The next part is subject to regulations surrounding a process such as this, to our knowledge at Divistock there are little to none surrounding asset tokenization as this niche of the blockchain industry is not established enough. But in order to maintain the trust of its users, and possibly to be legally compliant in the future, along with the agreement submitted to sign over ownership, the company should also submit an agreement promising legal ownership of the asset to the user holds it’s assigned cryptocurrency upon request of that user. Without this, under current regulatory standards, it may be possible to legally sell the assets after they signed over to this company with the tokenizing user’s knowledge.

After all of these documents have been submitted and signed, the rest of the process is quite simple. Assuming the company is able to deploy smart contracts on a DApp running on a decentralized network, it will first notarize all of the documents surrounding this assets tokenization through some sort of process similar to Proof of Existence, and then it will create a new token on this network that these documents should be tied to. I.E. All of these documents should be retrievable on the immutable ledger under this cryptocurrency and every time a transaction occurs with this cryptocurrency, it should link back to the transaction in which the documents surrounding its asset’s tokenization were notarized on.

Finally, the token or tokenized asset should be sent to the wallet of the user that tokenized it. Of course, this still leaves a lot of questions unanswered, such as how could an asset be “untokenized”. If it couldn’t be then there would be no value to the token associated with the asset. Also, how could a decentralized holding company be decentralized? If it is run by the tokenization company then it is no more decentralized than that company itself…

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