My Dog Wants To Be Tokenized, How Could I Do It?

I’m not trying to understand the reasons behind Doggy’s sudden desire to be tokenized and if it reveals some kind of in-security (haha) related to his childhood. For the sake of this article, I will assume he has his own reasons and will elaborate on how Doggy can achieve this wild dream.

Please note: this is not an ethics debate about animal tokenization.

With this said, tokenization of an asset is its fractionalization and conversion into a tradable asset: a token. This token represents a digital fraction of the real asset and can be issued through a blockchain which is a type of distributed ledger securing identical copies of data across a network of authorized stakeholders. Data stored on blockchain can’t be accessed without authorization and is nearly impossible to alter.

The benefits of tokenizing real assets are multiples:

Fractionalization lowers the minimum investment amounts making the investment/ownership of a high-value asset more accessible Blockchain technology gives more transparency, secures transaction records and enables swift settlement processes Tokenization by lowering the barrier to entry and the time transactions, transforms illiquid assets by widening the range of buyers and sellers and thus creating a secondary liquid market

Fractionalization and Tokens Issuance: « Give me a Doggy and I shall Tokenize it »

The same Doggy can be represented with different types of tokens depending on the use case. There is a difference between security (or investment tokens) and utility tokens.

Security tokens grant ownership (comparable to traditional shares: equity tokens or bonds: debt tokens). Equity tokens can refer to the tokenization of a single real asset or the tokenization of the legal structure (fund, trust, LLC,…) owning the asset. Whereas, debt tokens represent debt secured against the asset.

On the other hand, a utility token offers the holder the rights to a specific service.

You could also imagine hybrid tokens being a combination of utility and ownership tokens.

I wonder if Doggy had all these options in mind when he was talking about being tokenized …

Let’s explore three different ways to issue DoggyTokens:

• Option 1: Tokenization of Doggy or Tokenization of the legal structure owning Doggy (equity tokens)
• Option 2: Tokenization of debt secured against Doggy (debt tokens)
• Option 3: Utility Tokens to enjoy Doggy-as-a -Service (utility tokens)

Tokenization of Doggy

This option is only possible in countries where direct ownership of a dog can be split into many fractions, where the Pet Registry is fully digitalised and where rules of control and management of a dog are standardised.

Tokenization of the legal structure owning Doggy

In most of the juridictions, it is today more convenient to create an SPV (Special Purpose Vehicle: limited company, fund, trust, …) that will own the asset and then fractionalize this structure into shares tokens

For both Option 1 (tokenization of Doggy) and Option 2 (Tokenization of the legal structure owning Doggy), each DoggyToken is a fraction of the ownership of Doggy. If you hold some DoggyTokens, you would be partially accountable for rights and duties of Doggy up to your shares.

Let’s say you have one third of the total amount of DoggyTokens, if Doggy poops in the street, then you are responsible for cleaning up one third of his sh**.

On the other hand, let’s imagine Doggy is a breed dog (which he is not that bastard, but let’s imagine he is), then owning Doggy Tokens gives you mating rights. Every time Doggy mates and the female gives birth to baby Doggies, you will earn one third of the benefits of selling baby Doggies.

Or when Doggy wins the second prize of Sheffield’s Dog Beauty Competition, guess who will cash in one third of the prize?

Tokenization of the debt secured against Doggy

Remember the day you wanted to acquire Doggy but could not afford it ? You could have done a deal with your bank and tokenized a loan.

This way, everytime you pay back the monthly payment, the token equivalent becomes fully yours. But the day you stop paying back, the lender will take ownership of the outstanding capital in token and might sell them to get back the money you owe. Unlike with a traditional debt, you would not lose the whole asset and you could keep the tokens you paid for.

As long as you do not have defaulted, the debt tokens are at the same time yours and the lender’s

Doggy’s Utility Tokens

Now that we own Doggy, we can start issuing some utility tokens that people can buy from us and then use to have special access to Doggy. For example, for one of these tokens you could spend 30 minutes peting Doggy.

Passive income, we’re coming for you !

Secondary Market : « I got 99 Tokens but liquidity ain’t one »

If it’s not tradable, then it’s not a token. Trading these tokens on a secondary market increases the liquidity of typically illiquid assets, hence it reduces the minimum investment periods while aslo reducing substantially administrative and transaction costs and delays .

Fed up with Doggy? You could exchange the DoggyTokens for a fraction of a painting any time in a smooth way allowed by Blockchain technology.

Blokchain also introduces transparency, so there’s a traceability over the provenance of Doggy, his activities and the chain of ownership. Next time your daughter says she’s Doggy’s mama, you can confidently tell her « Sorry darling, I can’t see your name on the Distributed Ledger of transactions; however I can sell you some utility tokens. Now go mine Ethereum »

Anyway …

Choosing Doggy to illustrate asset tokenization is the worst example ever. But the same mechanisms can apply to race horses, to fine arts or to real estate investment.

Also published at http://rekolt.co/dog-tokenization/

P.S. No dog was harmed in the making of this article.