227

Decentralizing Finance

opportunities come with the tokenization of the asset in question. Tokenizing

tangible real-world commodities differs from tokenization of intangible assets

like a software licence. Tokenizing fungible assets like identical types of shares

differs from the tokenization of non-fungible assets like a unique work of fine

art (see Figure 13.4). Regardless of the type of asset to be tokenized, the basic

purposes and benefits are the same: By tokenizing assets and thus equipping them

with a virtual representation in the form of a token on a blockchain, it is pos­

sible to cut away costly and inefficient middlemen for decentralized trade and

exchange, which is faster and easier. Developing blockchain and smart contract-

based tokenization platforms will create solutions for tokenization of all kinds of

real-world assets, from intellectual rights to commodities to collectables to real

estate, with the purpose of increasing liquidity, cutting costs, enabling fractional

ownership of assets and opening up the estimated US$280 trillion market of real-

world assets for investment. This makes it possible for anyone, anywhere in the

world, to invest and create a future global investment market far more democra­

tized than the market of today.

13.6  THE TOKENIZED CAPITAL MARKETS AND DEBT MARKETS

A fully developed capital market is made up of a primary market, where securities

are created, and a secondary market, where those securities are traded. The most

common capital markets are the stock exchanges, where financial products such as

equities (e.g. ownership shares such as stocks) are traded, as well as the bond market,

where interest-bearing debt instruments are bought and sold.

TABLE 13.1

Important Distinctions between IPOs, ICOs and STOs

IPO

ICO

STO

IPO gives you ownership of the

company based on the number

of shares acquired.

ICO give rights of project, not

the company equity.

STO tokens represent a share

of an underlying asset.

Financial data according to

exchange of IPO issued.

As outlined within the white

paper and investor agreement.

A security offering under the

qualification of an

investment contract.

Subject to taxes, with investors

liable to capital gains tax.

ICO company may not be taxed;

investor subject to capital gains

tax.

Subject to taxes, with

investors liable to capital

gains tax.

An IPO is a onetime sale with

multiple intermediaries.

ICOs can have multiple rounds

with no intermediaries, the

white paper as the blueprint.

STOs have limited

intermediaries (lawyers,

advisors, no bankers).

Stock exchanges and companies

listed by IPO are heavily

regulated.

ICO exchanges are not regulated.

STO are somewhat regulated.