regfrac solutions
Fractionalisation
Asset fractionalisation concept of splitting up ownership of something so that many people can receive benefits from it in a proportion to the amount they own. It is a simple concept that has been around in financial services for hundreds of years – when you purchase a share, you are essentially purchasing a fraction of the company.
Tokenisation
Fractionalisation and blockchain technology offers a whole new world of possibilities. It is not the ability to fractionalise itself – that is a tried and tested method of asset distribution, and can be done via shares, unit trusts, contractual mechanisms, etc. It is about reimagining the end-to-end process of finding and matching investors with investment opportunities, creating secondary market opportunities and the efficiency / security and costs reduction that blockchain offers in private markets.
Tokens live on systems that are built to record the existence of assets, rights or informational data, and structurally ensure that they can’t be spent twice, and can only change in accordance with their relevant smart contract. The distributed ledgers e.g. Ethereum or Cardano on which tokens are captured are validated by the blockchain network, synchronized and shared with all network parties instantaneously, permanently recording an accurate ledger of transactions generally accessible to the public.
Wallets that can contain tokens that have been issued, split up (fractionalised), and re-combined in a simple way that can be extended to other assets in the fungible space e.g. Bitcoin. They can also get more complicated in the non-fungible space in terms of their uniqueness – non-fungible tokens are non-interchangeable units of data stored on a blockchain that can be sold and traded. They have a level of cyber protection that is resistant to hacks, and ensures ‘trust less’ transactions between two parties.
Benefits | Risks |
Reduced costs, increased user experience and more efficient global markets permit more investment opportunities and more investors. There is a lower barrier to entry, because fractionalisation can be facilitated at a cheaper level; liquidity is often greater because tokens are easily and securely transferable by way of blockchain technology, It also opens up new avenues of investment – fine wine, art and building loans are but a few examples. Or old areas of investment reimagined. Real estate tokens can represent ownership of part of a real property or rights emanating from it e.g. rent, whereas tokens in REITs typically facilitate investment into pools of various real estate assets. There are the opportunities for improved financial and credit products. Coupons can be delivered hourly (instead of quarterly), returns can be in something more than fiat e.g. kilolitres of water purified or discounts at the store you’re an investor of, and investors can check the provenance of the fund’s investments. There are also social utilities e.g. tokens which allow for participation in certain decision making rights for a fund. | There are huge rewards for those who are willing to seize them in private markets. There has, in my view, never been a more exciting time to be in financial and credit product development. The opportunities But, in Australia now, blockchain technology is largest unregulated. I am contributing to various lobbying efforts for the industry (including appearing at the Senate to give evidence), and my thinking is contained in various submissions e.g. here. This means that each token needs to be considered from a financial services licensing lens, and legal sign off should be gained before deploying the product. Otherwise, ASIC could allege that the token itself represents a credit product or financial product, or that its use makes it a financial product e.g. pooling. There are substantial risks from engaging in unlicensed activity, and it can be quite easy to get it wrong given financial services regulation is itself complicated and overlaying it with Web3 technology amplifies that. |
RegFrac Solutions
My team and I have worked on tokenisation of financial products, creation of secondary markets for tokens, developing novel token structures and assisting DAOs. We work with Web3 businesses and developers closely to understand the client’s needs, what the product is from a financial services perspective, how it fits within the regulatory framework (or not, and needs modification!) and then to build something which can offer businesses and consumers something better than they have now. It is really exciting!
If you are a fund tokenising your assets to access a broader investor pool, a lender looking to democratise investment into lending products, someone who is building a vehicle for fundraising for social good – get in touch and we can assist in taking you from idea to delivery. There is no cost for a 15 minute consultation with us and our developers (worth about $600 + on our combined charge out rates) – though we do not take equity stakes in projects, and stick to our knitting in terms of financial and credit products – and we can tell you what we think you need from a combined legal and developer perspective. You can also test our knowledge and user-friendliness, and whether you think we will be a good fit for your project. Some of the developers we work with are:
– Blockstars Technology (https://blockstars.com.au/)
– Dltx Labs (https://www.dltx.io/)
If there is a business case to proceed with us, we will offer you discounted pricing, as RegFrac Solutions gives the developers peace of mind they’re building something lawful. In turn, on the legal side, giving us involvement in structuring things from the start makes things much easier for us. Where feasible, we are open to fixed fee offerings.
Please get in touch through the contact page – I would love to hear from you!
