Tokenizing Real World Assets - A 8-step Checklist For Issuers
InvestaX Legal Team

If you are an Issuer looking to tokenize real world assets (“RWA”), fret not! We got you covered with our 8 step tokenization checklist that will help you get started quickly on your tokenization journey. The checklist here is designed to offer issuers a clear and detailed overview of the steps required to successfully undertake an asset tokenization project. However, before diving into the checklist details, let’s look at some of the other fundamental aspects when it comes to preparing yourself for tokenization:

  • 1. RWA tokenization service providers
  • 2. Fundamentals of Asset Tokenization
  • 3. RWA tokenization process
  • 4. RWA tokenization checklist for issuers

The Fundamentals of Asset Tokenization

Tokenization is a process of converting ownership of assets into security tokens that can be traded on a blockchain network. 

Initially, tokenization was used primarily for fundraising purposes, allowing startups to raise funds through Security Token Offerings (STOs). However, as the technology continues to evolve, tokenization is increasingly being used for other purposes beyond fundraising, such as tokenizing real world assets to improve their accessibility, market efficiency, and liquidity. The security tokens of real world assets are also known as real-world asset tokens, abbreviated as RWA tokens. 

Various types of assets can be tokenized using blockchain technology.

  • Tangible Assets, such as real estate, artworks, and physical commodities (like gold and diamond). Check out here to see our latest deal for a tokenized diamond fund.
  • Intangible Assets, such as carbon credits, renewable energy, and intellectual property. 
  • Financial Assets, namely stocks, bonds, and derivatives.
  • Fiat Currencies, mainly represented by fiat-backed stablecoins and central bank digital currencies (CBDCs). USD-pegged stablecoins like USDC and USDT, in particular, have been dominating the market value of the tokenized asset.

RWA Tokenization Service Providers

It’s important to understand the different service providers in the market today so you do not get sold “a batteries not included service”. The most fundamental decision you need to take is who will be your tokenization partner in the journey. 

With respect to tokenization service providers, we see there are 4 basic models available in the market today:

  • 1. Self-build platform
  • 2. Token Issuance only (no licenses)
  • 3. Token Exchange only
  • 4. InvestaX Licensed Tokenization SaaS Platform

In the table below, we have laid down for you a simple comparison for these four models and it can be seen that licensed tokenization platforms emerge as the best suited to get started. You can read more about this in detail here ‘InvestaX Tokenization SaaS is the Superior Solution”.

At InvestaX, we offer a licensed Tokenization SaaS platform that enables the issuance, trading, and custody of real world asset (RWA) tokens, also known as security tokens for private market assets. We have been granted a Capital Markets Services and Recognized Market Operator license by the Monetary Authority of Singapore to deal in and operate an organized market for RWA tokens respectively. 

At InvestaX, we offer a one-stop solution for all your RWA token needs, including seamless banking integration, thorough user verification with a KYC module, flexible OTC trading options, primary issuance services, cutting-edge blockchain technology, and smart contract deployment.

The Asset Tokenization Process

The process of real-world asset tokenization typically involves the following steps.

1. Asset selection and evaluation‍

The asset tokenization journey begins with selecting a suitable asset for tokenization. Its value is then carefully assessed and documented, following standard financial practices.

2. Legal structuring‍

When designing a robust legal structure for tokenization projects, it’s crucial to ensure that the digital tokens represent a valid claim to the underlying asset. This involves defining the specific rights associated with the tokens and choosing an appropriate tokenization structure. 

The two common tokenization structures include Tokenized Special Purpose Vehicle (“SPV”) and Direct Asset Tokenization:

  • 1. Tokenized SPV: Tokenized SPV approach also known as indirect tokenization is a common approach where the asset is held by an entity, either a private limited company or a trust. This entity is then tokenized, and tokens are issued through a pooling of funds from multiple investors, giving investors indirect interests in the underlying RWA. This is often a better approach as it fits within the securities regulations.
  • 2. Direct Asset Tokenization: The asset itself is directly tokenized and the tokens represent a direct claim on the underlying asset This approach is typically less common due to regulatory challenges and issues such as non-fungibility, lack of regulatory clarity, and limited use cases. 

Each tokenization structure often comes with different licensing requirements. Check out the Licensing Requirement Analysis for Asset Tokenization by InvestaX’s legal team for more details.

3. Custody‍ of the RWA and Custody of Security Tokens

Most times if it's a tangible movable RWA like whiskey barrels the RWA is securely stored and managed by qualified custodians, trustees or licensed managers. This ensures the asset is immobilized and safe kept before its digital representation is created on the blockchain. On the other hand, the digital representation i.e. security tokens can be either i) Self Custodized or ii) Custodizing security tokens with a licensed digital asset custodian. 

1. Self-custody 

Self Custody wallets are wallets used to store digital assets providing users full control over their private keys and, consequently, their funds and assets. There are two primary types of self-custody wallets: hot wallets and cold wallets.

i) Hot wallets 

Hot wallets are self custody wallets that are connected to the internet. They are typically used for everyday transactions and quick access to funds. Some of the examples for hot wallet are the web wallets available through online browsers like Metamask. Hot Wallets have various advantages including easy to access, quick transactions and intuitive user interface. However since hot wallets are connected to the internet, it makes them more susceptible to hacks, malware attacks and other cybersecurity attacks.

ii) Cold Wallets

Cold wallets are wallets that are not connected to the internet, providing a higher level of security for long-term storage. These include hardware wallets like Trezor and Ledger or air gapped devices which are not connected to the internet. As cold wallets are not connected to the internet this reduces the risk of hacking and online theft. However, accessing funds is more cumbersome and the physical wallet can be lost, stolen or damaged.

2. Custodizing Security Tokens with a Licensed Digital Asset Custodian

Licensed Digital Asset Custodians are regulated and authorized to provide custody services. These custodians are typically subject to stringent regulatory requirements and oversight, ensuring they adhere to high standards of security, operational integrity, and compliance. By leveraging the services of a licensed digital asset custodian, organizations can mitigate the risks associated with holding and managing digital assets, ensuring they are stored securely and in compliance with relevant regulations. At InvestaX, we work with licensed custodians to provide you with a trustworthy and credible custody infrastructure.

There are many different types of assets in the world and how they are handled is widely different. 

4. Tokenization‍

The representation of the ownership of the asset is converted into digital tokens (which we often call “RWA tokens”) on a chosen blockchain and launched on either the RWA issuer’s website or via licensed asset tokenization platforms (like InvestaX and IX Swap). 

5. Primary Offering

Once tokenized, RWA tokens are listed on primary marketplaces for investors to participate in the initial offering. 

For tokens classified as securities,  investor registration, and KYC/AML checks are mandatory. Investors then can store RWA tokens in whitelisted digital wallets such as Metamask or Coinbase Web3 wallets or with a licensed digital asset custodian.

6. Secondary Trading

Following the initial offering, RWA tokens may be traded on secondary markets through various channels: 

  • Licensed RWA broker-dealers such as InvestaX
  • Licensed RWA exchanges such as InvestaX’s IX Exchange
  • Decentralized exchanges (DEX) like IX Swap's DEX

7. Ongoing Management

Post-tokenization management involves essential services like regulatory compliance, tax management, regular asset valuation, and facilitating corporate actions such as dividend distribution and voting rights. This management continues throughout the token's lifespan until its maturity or redemption.

After RWA tokenization, ongoing compliance is also necessary to ensure continued adherence to regulatory requirements. This includes monitoring changes in securities laws, implementing necessary updates to smart contracts, conducting periodic audits, and managing investor relations.

Asset Tokenization Checklist For Issuers

Building on the asset tokenization process, here's a detailed checklist to guide you as an issuer through the essential steps for a successful tokenization project. This will ensure a smooth and compliant launch.

1. Feasibility

Identify an asset with strong tokenization potential.

  • Market Demand: Conduct thorough market research to assess demand for your tokenized assets. This involves understanding investor interest, level of understanding of tokenized asset concepts, evaluating similar past projects, and defining the ideal investor profiles.
  • Strategic Alignment: Ensure the tokenization initiative aligns with your overall business objectives. Consider potential benefits like improved liquidity, new revenue streams, competitive advantages, and enhancements of specific values like employee satisfaction or customer experience.

2. Transparency

Ensuring transparency is crucial for building trust and credibility with investors.

  • Due Diligence: Before tokenizing an asset, conducting thorough due diligence and valuation assessments is crucial. Professional appraisers, auditors, and legal experts may be required to evaluate the asset’s worth, verify ownership, and assess any potential risks or encumbrances. These processes ensure transparency and build trust among potential token investors. 
  • Tokenization Documents: Prepare documents such as an investment teaser, term sheet, offering memorandum, and subscription document to provide prospective investors with detailed information about the investment. These documents help investors get an insight into the tokenization project and help build investor confidence.

3. Regulation & Compliance

Navigating the regulatory landscape is essential to ensure legal and operational security for your tokenization project.

  • Jurisdiction Selection: Determine the jurisdiction(s) for the token offerings based on governing laws, target investors, and the objectives of the offering.
  • Legal Framework: Work with legal counsel to research and comply with the regulatory framework for digital asset securities in the chosen jurisdiction(s). Define token rights and select the most suitable tokenization method (Tokenized SPV or Direct Asset Tokenization) based on regulations and business goals.

4. Token Design & Structure

Effective token design and structure are critical for the adoption of your tokenized assets. Key considerations include:

  • Token name: Choose a name that reflects the asset and appeals to investors.
  • Tokenomics: Define the total supply, distribution model, and pricing strategy.
  • Initial price: Set the initial sale price for your tokens.
  • Network: Determining the blockchain or token network on which the token will be launched.

5. Technology Capabilities

Asset tokenization involves heavy technology infrastructure and capabilities. The list of technology capabilities includes token issuance, investor onboarding (KYC/LML checks), trading, custody, and post-tokenization management such as asset servicing, settlement, and other functionalities that facilitate the use cases of the tokenized assets, such as lending, liquidity mining, and swapping.

It is important that companies determine whether to self-build, partner for, or buy these technical capabilities. Take a step further, once looking for external resources, you should opt for licensed tokenization platforms that offer comprehensive support for tokenization and compliance, such as InvestaX's Tokenization SaaS Platform.

6. Interoperability

Interoperability is an important factor to consider when choosing a tokenization platform and blockchain protocol for asset tokenization. It directly affects the accessibility and in turn, liquidity of the tokenized assets.

Public blockchains tend to offer greater interoperability, enabling tokenized RWAs to interact with other digital assets like stablecoins, NFTs, and DAOs. This connectivity facilitates broader adoption and diverse use cases of RWA tokens in the DeFi ecosystem.

On the other hand, while private blockchains might provide enhanced security and privacy, they often operate in isolation, limiting the use cases and interoperability of RWA tokens. 

Your choice between public and private blockchains should align with your goals for accessibility and security. Also, ensure that the tokenization platform you select integrates well with your chosen blockchain protocol.

More on this topic: Public vs. Private Blockchain: A Comparison for Tokenization

7. Security

Asset tokenization platforms need strict security measures to protect tokenized assets against unauthorized access and avoid losses. Key security measures include:

  • Know Your Customer (KYC) module: To comply with Anti-Money Laundering (AML) laws and ensure user verification.
  • Two-factor Authentication (2FA): To prevent unauthorized access.
  • Compliance With Licensing Requirements: To adhere to regulatory standards and maintain platform integrity.
  • Smart Contract Audits: To ensure the integrity and security of the smart contracts used in tokenization

8. Adoption

Successfully promoting and adopting your tokenized assets requires understanding your target investor profile and crafting an effective marketing strategy. Key considerations include:

  • Investor Profiling: Identify the qualifications and requirements for RWA token investors in each jurisdiction where your offerings will be made. This helps tailor your marketing efforts to the right audience.
  • Marketing Strategy: Develop a comprehensive strategy to attract and inform potential investors. Highlight the benefits and unique selling points of your tokenized assets to raise awareness and drive interest.

Tokenize Your Asset On Top Of Our Infrastructure

InvestaX provides a leading Asset Tokenization SaaS platform Licensed by MAS (Monetary Authority of Singapore). Our service offers a one-stop solution for all your real-world asset tokenization needs, including seamless banking integration, thorough user verification with a know-your-customer (KYC) module, flexible OTC trading options, primary issuance services, cutting-edge blockchain technology, and smart contract deployment.

InvestaX's licenses granted by Monetary Authority of Singapore (MAS)

InvestaX can help issuers conduct security token offerings (STOs) of your tokenized assets in compliance with Singapore securities offerings rules for both onshore and offshore investment vehicles. You can launch global products for global investors on our platform based in Singapore.

Contact us for a consultation regarding your tokenization strategy.