Tokenization is a process that can revolutionize the financial landscape. This is because it has the ability to transform the way investments are managed, used and monetized, in addition to contributing to the creation of a multitude of new financial products, allowing every person and organization in the world to diversify their investment portfolio on a global scale, whether whatever your income or size.

The discharge of the asset tokenization platform development took place between 2015 and 2017, but the emergence of cryptocurrencies was a key factor in the popularization of tokenization, especially Bitcoin, launched in 2009. The ERC-20 standard ( Ethereum Request for Comments nº 20), proposed by one of the genius programmers , Fabian Vogelsteller in November 2015, was the milestone when initial coin offerings (ICOs) – a type of public offering of capital on the stock exchange – popularized financing for blockchain-based projects.

During this period, many companies and projects were able to create and issue their own tokens in order to raise capital and facilitate transactions within their platforms. From this moment on, tokenization has been increasingly adopted in several sectors, including finance, real estate and art.

In the context of blockchain technology, tokenization is the process of converting something of value into a digital token usable in an application blockchain and a token represents a much smaller, and accessible, part of the ownership in the underlying asset, it is a digital representation. An even more exciting factor is the possibility of tokenization transforming properties that are traditionally indivisible assets into a divisible asset through fractionation in the form of tokens.

And it doesn't stop there, the time required to issue a token for any asset or for any purpose on the blockchain is only 30 seconds. A token can represent tangible assets (property rights and gold), or intangible assets (such as works of art, company shares, copyrights and carbon credits).

However, asset tokenization can be complex and involve legal, technical and compliance issues. The issue is whether tokens are allowed to be offered to the public, so it is important to consult experts before proceeding with issuing tokens for a specific asset. A practical example is the CVM, which legislates on securities and restricts the sale of tokens classified as “fixed income” in April 2023 – as per CVM 40 guidance – as well as the SEC, equivalent toCVMin the USA, it also has its prohibitions and restrictions.

Tokenization allows the storage and listing of naturally digital asset transactions in a digital ledger within a blockchain network, providing a high standard of veracity for such transactions. Furthermore, the use of smart contracts brings permanent registration, making them immutable and instant execution. Thus, this process is capable of reducing transaction costs, because it mitigates administrative procedures, providing speed to transactions.

Issuing a token requires a programming code in the ERC20 token development standard that has the name of the token, the initial maximum quantity, the unit of measurement and the number of decimals and is translated into a specific language, called “compiled code”. . This code is then sent to the compatible blockchain network in a process called deploy . Then, the Smart Contract is created , which will have the logic and behavior of the ERC-20 code and with this the token is born on the desired blockchain network.

The ERC-20 standard requires that tokens are initially registered in a specific wallet in their entirety or are transferred as they are issued and “minted” (Mynt), that is, in the “Smart Contract” there is an issuance feature under demand, which is very well seen in the case of USDT, EURT, BRLT stablecoins, which are only issued if the collateral initially exists in the real physical world (in a bank account).

According to CVM Guidance Opinion No. 40 (October/2022), there are 3 options for token categories, they are: (1) Payment Token ( cryptocurrency or payment token ), (2) Utility Token ( utility token ) , (3) Token referenced to Asset ( asset-backed token) which are subdivided into 4 types: (3.1) security tokens , (3.2) stablecoins , (3.3) NFTs ( non-fungible tokens ) and (3.4) other object assets of tokenization operations.

In item 3.4, there is also Circular Letter No. 4 (April/2023), which characterizes receivable tokens or fixed income tokens (together as TRs) as securities, therefore regulating and restricting even more issuance opportunities and management of this type of asset only for some authorized institutions.

A meeting, represented by ABCripto after the suspension of receivables/income token issues, brought the possibility of flexibility by the CVM based on the following proposals: not considering receivables tokens as securities, the application of only some rules of Resolution 88 of the CVM in relation to crowdfunding and the development of a licensing model that focuses on tokenization.

These requests were based on the fact that the blockchain technology model itself and its protocols, whether by L2 or L3 (Layer2 or Layer3), are capable of proving centralized deposit and bookkeeping, in the case of receivables securitization, as well as layers of privacy (for example, Tessera technology on the Hyperledger BESU blockchain – the same blockchain chosen by the Central Bank of Brazil, BACEN, to issue the Central Bank Digital Currency (CBDC), the Brazilian digital real, scheduled for the end of 2024. This makes the most coherent, secure, componentized ecosystem, with privacy, as the BACEN and CVM regulation matures in relation to crypto assets and the tokenization of assets evolves.

Despite the variety of possibilities brought about by tokenization, the work is not yet finished. Much remains to be done regarding consistent global regulation and development of production-grade solutions needed to broaden adoption. As investment in tokenization technologies continues to increase and the benefits of new assets become more evident, financial institutions must start thinking about what infrastructure is needed to support tokenization, e.g. onboarding , management, and integration with legacy systems in order to be part of the financial sector of the future.

Even with these regulatory challenges involving the use of tokens, we cannot deny the rise of asset tokenization, as it is a more accessible and democratic form of investment when authorized, as assets that were previously only available to large institutional investors can be fractionalized. in small parts and sold as tokens to individual investors through tokenization. Furthermore, the process allows for greater liquidity for tokens that can be traded on exchange platforms.cryptocurrencies at any time, without the need for intermediaries.

Security is also one of the reasons why tokenization has become popular. This is because of blockchain technology, which guarantees the authenticity and traceability of tokenized assets.