Fundraising is an important process for many startups and established corporations. Additional funding helps these companies to grow, improve and innovate on their projects whilst also offering investors an opportunity to potentially increase their wealth by providing funds with the expectation of a return on investment.
However, it’s not always easy for founders to raise funds or for investors to provide funding for a project. Blockchain technology can bridge this gap through asset tokenization, and one platform is currently working on bringing this technology to the mainstream.
Brickken has built a platform and toolbox that enables businesses to convert their traditional assets onto the Ethereum blockchain. This process works by creating digital security tokens that can be used to divide ownership of an asset. Before we look at the process further, let’s look at traditional fundraising in its current state.
For business owners, navigating the day-to-day challenges of fundraising and asset management can be daunting, particularly at the startup level. In the dense landscape of venture capital and crowdfunding, it is incredibly difficult for young companies to cut through the noise and secure funding through traditional methods.
Established avenues of fundraising exclude average investors from getting in on the ground floor of projects they believe in. The startup failure rate is astronomically high, which presents an opportunity to foster inclusive alternatives to slow this trend.
Token offerings have played a big part in the growth of the cryptocurrency market with Initial Coin Offerings (ICOs) being one of the major catalysts for the 2017 bull market that saw cryptocurrency go mainstream. Initial Exchange Offerings (IEOs), Initial Dex Offerings (IDOs), and NFT mints have taken the center stage since 2020 when it comes to fundraising for blockchain projects.
This is due to the very low barrier to entry for crypto projects, which makes it easier for founders to get funding whilst making it simple for regular people to invest their funds into projects. However, the same cannot be said for traditional companies that have to deal with a lot of red tape when it comes to fundraising. This red tape affects both investors and founders, with founders being restricted to institutional investors, whilst regular people cannot invest in projects unless they’re accredited investors or the company they want to invest in goes public.
Asset tokenization is one approach to solving this fundraising problem. This works by creating digital ownership tokens that can be used to fractionize (or divide) ownership of an asset. For example, if a real estate company owned a building that was worth $500,000, it can be tokenized and represented by 1,000 tokens worth $500 each, 500,000 tokens worth $1 each, or 50,000 tokens worth $10 each. Investors can then buy these tokens, with the tokens held by an investor representing their stake in that building.
Let's say an investor bought 5,000 tokens at $10 for a total investment of $50,000. This gives the investor a 10% stake in the building. Since the blockchain industry has lower barriers to entry, it would be easier for prospective investors to buy these tokens. For example, an investor could buy 10 tokens at $10 each for $100 total, giving them 0.02% ownership of the building.
In traditional finance, this would be very difficult, with the multitude of fees and red tape to deal with. The closest alternative would be investing in a publicly traded Real Estate Investment Trust (REIT); however, with this approach, you’re investing in another organization and not the actual property itself.
Brickken has developed a tokenization protocol and interface to help companies create on-chain equity from traditional assets. The protocol uses its nativeBKN token and decentralized application (dApp) to enable businesses to issue their own utility and security tokens to raise funds and digitize company ownership. The dApp serves as a platform to help centralized businesses transition to a decentralized autonomous organization (DAO) model. These corporations can also use Know Your Customer (KYC) protocols to remain compliant and prevent bad actors from accessing their platforms.
Breaking down traditional assets into digital tokens can make it easier for organizations to raise funds by opening up the investor pool to everyday people. In a way, it’s similar to an IEO, but the biggest difference is the fact that users will be buying security tokens instead of cryptocurrencies. This way, traditional assets can be digitized and sold whilst remaining compliant with SEC regulations and taking advantage of the democratic nature of blockchain technology.
Conclusion
Asset tokenization provides a new way for founders and corporations to raise funds whilst also enabling more investors to get into ownership of traditional assets. Will this blockchain-based approach to fundraising and asset ownership take off? Only time will tell.
Disclosure: This story was submitted to HackerNoon by an independent contributor. Hence the information contained therein has also been researched and compiled independently.
