What Should You Expect from a Tokenization Platform in 2024

Season’s Greetings from all of us at Tokeny!

As we approach the new year, it’s the perfect time to upgrade and take a look at your tokenization strategies. Let’s clear up a common misconception first: Far from being a straightforward task, building a robust tokenization stack demands more than just deploying smart contracts.

The platform should not only support advanced smart contracts such as ERC-3643 for on-chain compliance but also offer tools for transfer management, automation, data management, interoperability with existing financial systems, and a seamless investor experience. Let’s break these down below.

Tools for Automation and Token Lifecycle Management:

?️ Onchain Compliance Rules:  The platform must allow for setting up compliance rules via smart contracts (e.g., jurisdictions of investors, KYC checks, etc.) and utilizing a permission system to manage and appoint agents, for example, KYC agents for signing KYC credentials to investors’ digital identity.

? Digital Identities:  Every stakeholder, and especially investors, must be properly identified on the blockchain to apply permissions and compliance rules. For this, an encrypted on-chain identity system is needed as wallets ownership cannot be used as proof of identity.

⛓️ Blockchain Operations:  As most operations result in blockchain transactions, the platform must prepare the needed parameters based on the issuers’ or their agents’ inputs, to facilitate the selection of concerned investors, gas fees, etc. Once ready, these transactions are sent for signature to the authorized agent. This should be made possible for all the functions provided by the token smart contracts (e.g., around 120 functions for the ERC3643 standard).

? Secure Wallet Solutions:  Wallet solutions are needed for the issuer, its agents, and each investor. For issuers and their agents, they must support signature policies without impeding automation. For investors, they should offer non-custodial options to avoid regulatory constraints. Ideally, the wallet solution is integrated into the tokenization platform to automatically generate wallets, ensuring regulatory compliance and enabling seamless interchangeability through account abstraction.

?️ User-friendly Interface:  The platform must be user-friendly so that any stakeholder, regardless of coding or blockchain experience, can seamlessly navigate the platform. For investors, it should also offer an e-commerce-like experience akin to commonly used mainstream platforms with features like built-in self-custody wallets and gas tanks to eliminate friction points.

Data Management:

? Real-time On-chain Data:  The platform needs a performant indexer to sync blockchain data with the smart contracts orchestration platform. This is done by reading different nodes on the network. The platform has to provide an infrastructure management service to listen to the token and compliance smart contracts events, route to the most performing RPC, and provide a real-time data stream to the software and its users.

? Investor Data Management:  Managing investor data requires an automated cap table that aggregates off-chain data like personal identity data and on-chain data (i.e transaction records, digital identity credentials, etc.). In addition, issuers should be able to choose where they prefer the off-chain data to be stored.

? Asset Data Management:   To facilitate distribution, it is crucial to provide detailed documents and information about the tokenized assets to investors. The tokenization platform should enable the enrichment of the token with documents, third-party certifications (e.g., ESG), valuation, etc.

Interoperability with Financial Systems:

? Legacy Systems:  Large institutions need API-ready solutions to plug and play in their legacy systems to ensure the adoption of new technologies is seamless. Synchronizing investors with their on-chain identities, or integrating token actions in existing investor portals are usually the most needed integrations.

? Trading Venues and DeFi Services:  Broad distribution and diverse liquidity options are the most important reasons issuers tokenize assets on-chain. Therefore, the platform must enable issuers to connect natively to the best trading platforms (centralized exchanges, OTC, etc.), distributors, and DeFi applications (DEX, collateralization, etc.), to achieve this goal.

As we enter this new era of finance, asset managers, banks, and asset servicers must accelerate their tokenization market presence to stay ahead of the curve in 2024. It is crucial to collaborate with a seasoned tokenization platform provider, rather than starting from scratch.

With more than 6 years of track record in the market, and with our new backer, Apex Group, one of the largest fund servicers in the world, we are here to guide and support you in the tokenization movement.

We wish you a wonderful holiday season and an exciting tokenization year in 2024!