How to Tokenize Assets and Businesses? Legal aspects

Tokenization of assets or business is the process of creating a digital unit of account (token) that is tied to a specific object. Accordingly, tokens can be created for real estate, corporate rights and other property.

There are other definitions of tokenization and purposes of its use, but within the framework of this publication we will only discuss the legal side of the tokenization of assets and businesses as a means of digitizing them to attract investment and other financial purposes.

General information about asset and business tokenization

Tokenization of assets (including businesses) is a logical continuation of the creation of electronic registries of real estate and enterprises, as well as the expansion of the scope of application of blockchain technology.

Asset or business tokens are a kind of “securities” for such assets. It is the analogy with securities that can help to understand the essence and legal procedures of asset tokenization.

Objectives of asset tokenization

Typically, assets or businesses are tokenized for:

Attracting investments: tokens can be sold on the crypto market like securities and thus attract new investments to the project.
Increased liquidity: Tokenization allows assets (such as real estate) to be traded on the secondary market, which can increase the value of the project as such.
Additional motivation: tokens can be used as bonuses (prizes) to encourage the team (employees) or business partners.
Internal currency: tokens can be used as a local currency: in computer games, in a project, etc.
Process optimization and more.

Types of tokens

When talking about tokenization of assets or businesses, people often talk about issuing Asset-referenced token (for example, in the interpretation of Regulation (EU) 2023/1114 of the European Parliament and of the Council of 31 May 2023 on markets in crypto assets (hereinafter referred to as the “Regulation”). That is, such a token is “tied” to the relevant asset and is its digital analogue, evidence, a kind of security on the digital market. Such tokens record the owner’s rights to a share in a business, asset or company profit. Security tokens allow assets to be divided into minimal parts, which makes investments accessible to a wide audience.

It is also possible to issue utility tokens, which essentially provide the right to services, bonuses, subscriptions, etc. They are not tied to specific property, but can be exchanged for intangible assets in a specific system (in a specific enterprise).

And a special type of tokens are NFTs (non-fungible tokens), which are used to “digitize” unique assets, for example, in the field of art, licenses, tickets to events.

What assets can be tokenized ?

It is unlikely that restrictions can be established. But in practice, tokenization is carried out of the following items:

Material assets: real estate, equipment, goods in warehouse.
Corporate rights.
Intangible assets: intellectual property, brand, profit rights.
Services: access to premium features, exclusive offers.
Business processes and business projects.
Etc.

Legislation on the tokenization of assets and business

Tokenization is not regulated at the legislative level in all countries.

Since asset or business tokens act as instruments for attracting money from investors to a project and can be traded on the market (crypto market), they are often equated to securities (and are regulated by securities legislation) or recognized as a financial instrument (and are regulated by financial legislation in a broader sense).

For example, in the already mentioned Regulation, the issue of asset or business tokens requires either 1) a financial license (in the understanding of the second Directive of the European Union “On markets in financial instruments” (MiFID II)) or 2) a license (“authorisation”) (in the understanding of the Regulation).

Technical part of tokenization

The technical part of tokenization of assets and business will not be considered within the framework of this publication. Naturally, it is necessary to choose a platform for issuing tokens (for example, Ethereum, Binance Smart Chain (BSC), Polygon, Solana, Polymath, Tezos, Stellar, etc.), implement the technical part.

And even this stage must be consistent with the legal features of the project (taking into account the conditions of issue, use, circulation of tokens, their price, the rights of owners, the use of smart contracts (which must be audited) and much more).

Legal requirements for asset and business tokenization

Due to the different regulations of asset and business tokenization in different countries, there are no uniform requirements for all tokeniyation applications.

In general, the following legal requirements for the issue of asset tokens can be identified:

The issuer (the person issuing the tokens) must be a legal entity (i.e. registered in the company register).
Availability of a license (financial or special for tokens) (for example, SEC in the USA).
Providing the asset with property (accordingly, an audit and/or property valuation is required).
Compliance with the relevant legislation of the object to which the token is linked: corporate, financial, civil, etc.
Auditors’ (appraisers’) report.
Confirmation of compliance with KYC/AML procedures.
Developed and published documentation on tokens: White Paper, Marketing Documentation, internal policies, agreements, payment terms, token circulation terms, security provisions, etc.
And much more.

Requirements for issuing utility tokens and NFTs may be simpler and not require licensing.

In which countries to tokenize assets and businesses?

Each project must be implemented in the jurisdiction that is most suitable for it.

In Ukraine , as of January 2025, the legislation does not provide for the possibility of tokenization assets and business. The Law of Ukraine “On Virtual Assets” has not entered into force, and many issues are still the subject of discussion in legal circles.

In the following countries, tokenization of assets and businesses is permitted and has the following characteristics:

– US: Security tokens are subject to the Securities Act. Registration with the SEC is required or exemptions may be used (e.g. Regulation D (allows investment without registration, subject to restrictions), Regulation A+ (allows for raising up to $75 million, but requires significant reporting), Regulation S (for tokens distributed outside the US)). Utility tokens are ot regulated as securities unless they provide rights to income or control.

– Canada: Tokenization is regulated by the Securities Exchange Commission (CSA).

– European Union: Divides tokens into financial assets and non-financial assets (according to the Regulation or the Second Directive of the European Union “On markets in financial instruments” ( MiFID II)).

– Germany: Tokens are recognized as private property. Security tokens require registration with BaFin. A license is required to conduct an STO. Utility tokens are not regulated unless they perform the functions of securities.

– Switzerland: Favorable jurisdiction. FINMA (Federal Financial Market Supervisory Authority) provides flexible rules. Classification of tokens into three types: payment, utility, and asset-backed. Security tokens require a FINMA license. The country provides “crypto-friendly” legislation. Cantons such as Zug are known as “Crypto Valley”.

– Estonia: Convenient licensing process. Regulator: Estonian Financial Supervision Authority. The ICO/STO requires a license. Utility tokens can be issued without strict requirements as long as they are not financial instruments. Features: 1) Quick company registration for blockchain projects; 2) e- Residency program simplifies digital business management.

– France: Tokenization is allowed through a special license from the AMF.

– Singapore: Regulated by the Monetary Authority (MAS). Asset Tokens are subject to the Securities and Futures Act (SFA) and require licensing. Utility tokens can be used without strict restrictions. Features: simplified procedures for FinTech companies.

– Japan: Cryptocurrencies and tokens are regulated by the Payment Services Act. Security tokens require compliance with securities regulations.

– UAE (Dubai and Abu Dhabi): Regulated by financial services legislation. Dubai International Financial Zone (DIFC) and Abu Dhabi offer favorable conditions. Features: active development of free trade zones for crypto companies.

– UK: Regulatory Authority: Financial Conduct Authority (FCA). Tokens are classified as security, utility or e-money. Security tokens are regulated by securities laws. Utility tokens do not require strict registration. Features: flexible conditions for launching STO.

– Australia: Security tokens are regulated by the Australian Securities and Investments Commission (ASIC). Utility tokens do not require strict regulation.

– South Korea: Security tokens require licensing.

– El Salvador: After legalization, Bitcoin actively supports tokenization and cryptocurrency projects. Simplified regulation to attract investment.

– Kazakhstan: National program supports blockchain projects and digital assets. Features: tax benefits for AFCA (Astana International Financial Center) participants .

– Hong Kong: Liberal regulation. Regulatory authority: Securities and Futures Commission (SFC). Security tokens are regulated in the same way as traditional securities. Utility tokens and native platform tokens do not require licensing. Features: Liberal regulation makes Hong Kong attractive for STOs.

Some examples of asset and business tokenization by country:

Germany: Bitbond (tokenization of loans and bonds).

Switzerland: BrickMark (real estate tokenization ).

UK: Smartlands (tokenization of real estate and business).

Singapore: CapBridge (tokenization of corporate assets).

Estonia: Funderbeam (tokenization of startups).

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