Tokenization of industrial capital goods
Industrial capital goods (e.g. machines, energy infrastructure) inherit a crucial value to the world’s economy, yet they are suffering from limited financing and investment possibilities. These hurdles could be overcome with an efficient implementation of an Ethereum layer by Amazing Blocks. Machines, commercial vehicles and even cars could then not only operate autonomously but also be integrated in financial services such as leasing or factoring. With Amazing Blocks these tokenized industrial capital goods will be legally in line with the TVTG (Liechtenstein Token Act). This marks a significant step toward a digital token economy changing the way we will invest in the future and ultimately transforming the financial system. — Author: Nicolas Weber
Advantages of tokenization
The financing processes can be morphed into a dynamic “pay-per-use” system, enabling companies to better adjust their costs in line with the actual revenue currently generated. Additionally, tokenized industrial capital goods also enable companies to issue ownership rights for these machines. This will attract an extended network of investors who can actively participate in profits and provide required capital. Small and medium-sized companies as well as private and institutional investors will greatly benefit from this innovation.
The ability to sell fragments of ownership on the secondary market enables the company’s internal emission of respective tokens which can attract new capital inflow. The Liechtenstein Token Act was implemented in January 2020 and provides the legal conditions for true equity and ownership tokens. This framework allows service providers to offer legally compliant solutions to tokenize ownership-based rights of industrial capital goods.
Resulting in lower transaction costs the application of tokenization will give companies a competitive advantage. The ability to conduct variable payouts to investors gives companies a significantly larger choice of options. in the ecosystem of usage, emission, storage and trade.
CTO Raphael Hess issued the following statement regarding the advantages: “We permit the creation of an interdependent combination between investment and utility. Better scalability and cost-efficiency of financing processes are two major benefits of the connection of industrial capital goods, IoT and smart contracts on a blockchain-based system.” Given the expected amount of 75 billion devices in the machine economy by 2025 tokenization will be indispensable (see Figure 1). Merging two advanced industries and integrating them on a blockchain layer also enables automated processes and transactions as well as global transferability and tradeability within seconds. Faster settlements, digital fundraising, enhanced scalability and higher efficiency further stress the enormous potential. Therefore one can not stress enough the impact of the first mover advantage in this field. It will grant a substantial competitive advantage in the future of the rapidly evolving world of technology.
Why tokenization is needed in this sector
The industry is plagued by an omnipresent lack of liquidity. The reasons for this can be depicted as follows: The investment possibilities are limited and financing options scarce. Often they are infused by high prices and interest rate dependence with many additional costs for the complex and time-consuming process. The result is a lack of flexibility for clients as well as for private and institutional investors. Furthermore, the sale and exchange of said goods is met with complex paperwork and notary infused processes. Expensive high-risk investments further strengthen the argument of a highly illiquid industry paired with friction through intermediaries.
Additionally, pricing disputes across different industry segments lead to cyclical imbalances. Another pain point is the lack of transparency surrounding the machine economy. Knowledge of certain attributes is essential when considering them from the perspective of an investor. Therefore the result is an industry that is not equipped for mainstream adoption from investors. Nevertheless, there lies a lot of unlocked potentials when combining efficient value-producing, utilization and blockchain-based transaction features (e.g. peer to peer, decentralized, instantly available 24/7). On a positive note: Debt ratios in this branch are pretty solid, therefore enabling better profitability will allow these companies to sustainably accelerate growth for their business. CTO Raphael Hess further coined the following statement regarding the vision of Amazing Blocks in this sector: “Features like the automatic distribution of the machine’s additional capital gains are the final result and motivation for actually taking a shot at this disruptive model to reshape the machine economy as a whole. Smooth ownership issuance to investors will be a crucial driver for the future.”
How to tokenize industrial capital goods with Amazing Blocks
First of all, legal hurdles have to be taken out of the equation. Amazing Blocks efficiently leverages the renowned TVTG (Liechtenstein Token Act) enabling the establishment, disposition and administration of digital legal entities (e.g. tokenized ownership rights for machines) in Liechtenstein with EU-validity. On the other hand, Amazing Blocks utilizes Ethereum as a technological layer for its client-oriented holistic software. The result are equity and ownership tokens represented on a blockchain. They consist of a legal part (the articles of association) and a technical part (smart contract). Both are perfectly integrated — tech and law. Initially, a legal entity in Liechtenstein has to be established. Typically, setting up an entity can last up to 4 months. However, thanks to the experience and expertise of Amazing Blocks, the time can be reduced to a minimum thus saving time and money. The entire process can be executed fully remotely.
After the establishment period, the software of Amazing Blocks finds its use case. The Tokenpad functions as the base for administering the tokenized entities and is ready to be utilized for investor onboarding, subsequent issuance of equity, debt and ownership tokens as well as further management decisions. The owners receive Ethereum-based digital tokens that represent the ownership rights to the industrial capital goods. On the other hand, the Investor Suite functions as the frontend through which investors can manage their holdings, conduct KYC, AML and have a dashboard enabling them to invest with just a few clicks. Of course custody has to be taken care of as well. But this is not an issue, as any ERC20 compatible wallet like Metamask can be used to store the tokens. Custody can also be fulfilled with any other ERC20 compatible custodian like exchanges where access to the secondary market is granted. Now stored in ERC20 wallets, the machine’s ownership can be fragmented, traded, sold and bought on the secondary market. All whilst enjoying the instant, peer-to-peer features of Ethereum. Additionally, capital gains can be automatically distributed. Thus the final result is an alternative, dynamic asset class.
Future outlook and conclusion
The future holds skyrocketing developments caused by the vast amount of capital inflow from financing and investment access improvements. Newly founded synergies will push this stagnating sector forward to a decentralized, peer-to-peer oriented structure enabling the beforehand mentioned benefits. This is supported by geopolitical agendas of significantly investing in infrastructure and machines like India’s one trillion dollar plan for instance. The resilience of this sector is also shown in the fact that Germany’s industrial production grew at a faster pace in June than expected, despite COVID-19 related trouble. Tokenization will rejuvenate a frozen industry and further propel it toward digital integration.
Remarks
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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.
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