Tokenization of classic cars: revival of a hidden gem for financial asset diversification?

Classic cars are a very traditional industry. The tokenization of classic cars through startups like Amazing Blocks AG could transform this industry if classic cars are fractionalized in many pieces to ease investment in this asset class. When the 1962 Ferrari 250 GTO was auctioned off for more than 48 million dollars at RM Sotheby’s Auction on August 25, 2018, many raised their eyebrows due to the astonishing amount of money some people are willing to pay for cars over the age of 30 years. Cars tend to be considered a “bad investment”, as their value drops sharply after purchase and solely human emotions give them their true “intrinsic value”. But maybe it is in fact this emotional connection to cars which makes them so attractive from an investment standpoint. Classic cars are often sold and purchased through a variety of different channels, their value is estimated by different models and in overall the industry is very regionally fragmented. The tokenization of these assets through startups like Amazing Blocks AG could cope with mentioned issues and lead to a standardized, equally fair system. Therefore further boosting this precious industry. — Author: Nicolas Weber

How issuer and investor can benefit from tokenization of classic cars

Generally, alternative assets offer promising returns, since they often act anti-cyclical and hence diversify your portfolio. Nevertheless, prosperity is plagued by disadvantages such as low transparency and a lack of liquidity in the market. This is associated with high risk on both sides — investor and owner. To counteract this, the unique Liechtenstein Token Act was implemented in January 2020. It enables the perfect legal conditions for true equity and ownership tokens. In this model, the disruptive framework offers a legally compliant structure to tokenize ownership based rights. Amazing Blocks is a first mover in this field, by for instance conducting the first true equity tokenization worldwide and fulfilling a bankless incorporation solely with ETH as an initial contribution. Amazing Blocks offers a software as a service for the entire life cycle management and a detailed blue-print for the establishment and tokenization of legal entities.

Relying on the unique Liechtenstein Token Act, the physical validator within the blockchain layer enables a fully legal and licensed transfer of ownership after respective tokenization. Hence efficient purchase and sale of tokenized assets becomes instantly possible, while features like fundraising-on-the-go are some of the accompanied benefits. Illiquid collectibles like classic cars are now transformed into a new, dynamic asset class. As a result, the rather localized industry (e.g. Germany as hub) gains international access to investors paired with the promised liquidity through tokenization. Even a fund of tokenized classic cars becomes possible while investing in classic car tokens under one umbrella.

Brief overview of tokenization

Figure 1: The Token Container Model (Source: The Liechtenstein Blockchain Act (March 3, 2019), Government Principality of Liechtenstein)

Diversification in the world of finance

Introduction to the classic car industry

Figure 2: Classic car investments compared to other asset classes according to the VDA

The main issue today within the industry are the various amounts of different and complex pricing models facilitated to give each car its deserved value. However, no one can ever really determine what the exact value is, due to the lack of standardization and huge regional fragmentation. Usually, the value is determined by the global inventory, the historical sale price of the vehicle, the condition of the vehicle and the going market rate based on demand. Another interesting aspect to know is the fact that approximately 70% of sales are conducted through peer to peer exchange making it predestined for blockchain application. Peer to peer transactions are a core element within the ever evolving industry and tokens are exchanged through this model on a daily basis. The most common way to determine the price of a vehicle is by obtaining the services of a licensed appraiser, a costly effort, but thus far the only way to really receive a price no one can argue about.

Tokenization and classic cars combined

“Keeping up” with a car’s market value and security in real time are deemed essential in this industry and tokenization delivers the foundation for this. Consequently, an instant adjustment of the current market value is enabled in real time when traded on the secondary market. Now cars can even be utilized as collateral or be allocated in investment funds. When tokenized, the car can be stored in a safe location without having to be moved. Transportation tends to be a costly effort, as protection of the car needs to be assured to prevent damage and theft. Last but not least, even the insurance industry could be affected by this, as every vintage car is specially insured due to the high value personally and financially. Tokenization gives insurances as well as the insured the possibility of always referring to the contemporary market value of the tokenized classic car, when any issues emerge. This could simplify the often long lasting process of having to determine how much the insurance is going to reimburse.

How to proceed?

Future outlook and conclusion

Remarks

Amazing Blocks offers a tokenization solution that enables its clients to tokenize various assets according to the Liechtenstein Token Act (software-as-a-service). The software covers both the issuance of tokens and investing in tokens. It suits the needs for tokenizing all kinds of assets (e.g. machines, cash flow generating contracts, trademarks, real estate, cars). Imagine that some asset should be tokenized. For this asset various tokens would make sense: Equity tokens, debt tokens, participation rights as tokens, ownership tokens, or any mixture of these tokens. The software of Amazing Blocks helps issuers to handle multiple assets and to issue multiple tokens for these assets. This is possible by integrating blockchain technology with the law (that is, the Liechtenstein Token Act). At the core, there is the “digital legal entity in Liechtenstein” based on “tokenized shares” which allows a very efficient foundation, a very efficient operation of the company and, thus, an efficient and flexible possibility to tokenize assets. This should now make a wide variety of tokenization projects possible, because the costs for tokenization are significantly reduced.

Interested? Then, contact us! Are you interested in what Amazing Blocks is doing? Visit our website, write an email to hi@amazing-blocks.io, or follow us on LinkedIn or Twitter. Or provide your email address here and we will immediately send you more information.

Author

Digital legal entities in Liechtenstein based on true equity tokens to tokenize any asset in a standardized way to save time and money. - www.amazingblocks.io

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