Toko Pursues Dream of Tokenized Assets

A tokenization platform from global law firm DLA Piper, hopes to change the equation by using its experience to meld together law and technology

article-image

DLA Piper; Source: Shutterstock

share

key takeaways

  • Tokenized real-world assets haven’t taken off because while the technology might be sound, the legal side is shaky
  • Companies attempting to tokenize real-world assets aren’t anything new. But these are tech companies without legal expertise

Any trader knows the importance of a diversified, balanced portfolio. The dream for digital assets traders is to have their volatile crypto counterbalanced with tokenized real-world assets like real estate, art, or rare liquor.

But despite the numerous attempts at creating tokenization platforms over the past years across a variety of asset classes, nothing has quite captured the confidence of investors. Tokenized real world assets exist, but their volume is tiny compared to their non tokenized selves.

After all, the technology side of things isn’t overly complex; it’s the legal side that will literally make or break things.

“It’s a hugely complex legal problem,” explains DLA Piper’s Scott Thiel. “For an NFT of an artwork, and there’s a single token and single owner, the legal issues in there are relatively straightforward. The problem gets far more complex when you start thinking of higher value real-world assets.”

DLA Piper's Scott Thiel
Scott Thiel

Thiel is DLA Piper’s lead TOKO partner based in Hong Kong. He says that the firm has been exploring tokenization for some time now, but just wasn’t confident in the legal soundness of the existing solutions out there. 

“We spent a considerable amount of time speaking with technology companies that were doing tokenization,” he said. “One of the challenges we had is they didn’t really share our vision of dealing with the more complex asset classes and the need for compliance with all these sophisticated financial services regulations.”

Most investors are going to want their tokenized asset to generate yield — rental income from a building, for instance — while also being able to benefit from the capital appreciation of the asset, all the while having it as liquid as any other token in their wallet.

Sure, there are existing TradFi structures out there like a REIT, but as Thiel puts it, “I’ve yet to speak to anyone that’s attached to or regularly trades in their REIT.”

The problem is tokenization products that offer yield would most likely be a security, which, if done the wrong way, can create legal headaches or worse.

“As you go into that space you quickly find that the digital asset can quickly cross the line from being an unrelated bundle of contractual rights to being a regulated security token, or a collective investment scheme, or some other financially regulated thing in whatever market you might be talking about,” Thiel said.

Where is demand strongest for tokenized assets?

There’s a perennial east versus west debate in crypto — are the trading desks in New York better equipped because of investor maturity and regulation than Hong Kong or Singapore — and the same goes for tokenization. 

Thiel thinks that Hong Kong has the edge over Europe, which might be surprising since Switzerland is home to “arguably the most sophisticated digital asset regime on the planet”. One might think that given London’s proximity to it and ease of access, there would be a spillover effect. 

“One thing that has been striking to me is the maturity of debate we saw at conferences in Hong Kong seemed to be the highest,” Thiel said. “From a topic point of view, the conferences in London sound a bit like what happened in Hong Kong last year.”


Get the day’s top crypto news and insights delivered to your inbox every evening. Subscribe to Blockworks’ free newsletter now.


Tags

Upcoming Events

Hilton Metropole | 225 Edgware Rd, London

MON - WED, MARCH 18 - 20, 2024

Crypto’s premier institutional conference returns to London in March 2024. The DAS: London Experience:  Attend expert-led panel discussions and fireside chats  Hear the latest developments regarding the crypto and digital asset regulatory environment directly from policymakers and experts   Grow your network […]

Salt Lake City, UT

WED - FRI, OCTOBER 9 - 11, 2024

Pack your bags, anon — we’re heading west! Join us in the beautiful Salt Lake City for the third installment of Permissionless. Come for the alpha, stay for the fresh air. Permissionless III promises unforgettable panels, killer networking opportunities, and mountains […]

recent research

Frax report cover.jpg

Research

Frax saw continued development in its frxETH liquid staking derivative and Fraxlend money market throughout 2023. Frax V3 introduces an RWA strategy to drive utility to the protocol's cornerstone product, the FRAX stablecoin.

article-image

MicroStrategy discloses the purchase of 16,000 bitcoin throughout November

article-image

Digital asset firms face potential new regulatory landscape under Treasury’s proposed authority expansion

article-image

Uniswap Labs will be providing trading APIs to Talos investors through Fireblocks

article-image

DYDX supply will climb by up to 80% after the Friday unlock, but a couple factors make a massive sell-off appear unlikely

article-image

Switzerland-based Pando Asset, which has crypto products trading on the SIX Swiss Exchange, now looks to the US

article-image

Binance does not hold the required licenses to advertise and serve customers in the Philippines, the country’s securities regulator said