Digital assets are digital records or representations of the value stored and tracked using distributed ledger technology, often called blockchain technology. These records can represent traditional forms of value, such as stocks, real estate, and patents, and they can also represent new forms of intangible value, such as art.

Digital assets can be classified into four subcategories:

• Real world asset (RWA) tokens, also known as security tokens, represent ownership in a real-world asset
• Cryptocurrencies, designed primarily for exchange and payments
• Non-fungible tokens (NFTs), certify unique ownership and authenticity of digital or real-world items
• Central Bank Digital Currencies (CBDC) / “Stablecoins”, represent the digital form of a fiat currency

Let's explore each category of digital assets further in this article.

Types Of Digital Assets

Real world asset tokens (RWAs)

Real world asset tokens, or RWA tokens represent ownership in tangible and intangible assets such as real estate, commodities, or revenue streams from a business. Through a process called "Tokenization", asset ownership is brought onto blockchains under the form of RWA tokens. These tokens are typically backed by physical or tangible assets, providing investors with exposure to these assets in a digitized form.

Real asset tokenization is the next-generation channel of capital formation for businesses. These offerings are similar to traditional securities offerings, but instead of receiving a stock certificate or note for their investments, investors receive their investment shares in the form of digital RWA tokens.

Common characteristics of RWA tokens

• RWA tokens, or tokenized assets, are NOT cryptocurrencies
• Regulated by governing bodies and must be issued and traded on licensed platforms, such as InvestaX
• Essentially digitised version of traditional as well as alternative investments
• Present security-like features such as receiving voting rights and dividends

Types of assets that can be tokenized

Types of assets that can be tokenized include real estate, bonds, stocks, pre-IPO companies, digi-SPACs, private equity/debt, employee stock option (digital ESOP), NFTs, and artworks, among other assets.

Benefits of tokenization

Asset tokenization fosters a win-win scenario for all participants in the investment landscape. 

• ‍For issuers: Asset tokenization offers a spectrum of benefits including extended global investor reach, increased liquidity options, reduction in intermediaries, reduced operational costs, and the avoidance of discounts due to asset illiquidity.‍
• For investors: Tokenized assets unlock opportunities for increased liquidity, fractional ownership in otherwise unattainable assets, diversified investment portfolios, enhanced settlement, and transparent asset management through blockchain technology.

Read our latest blog for details: Top 8 benefits of tokenization

Opportunity size for tokenization in the private markets

“Tokenization will most benefit private capital markets that are easy to authenticate but relatively inaccessible to many investors” - Bain & Company analysis.

Traditional private capital offers strong authentication, but often comes with high investment minimums, limiting participation for many, especially small investors. Especially in real estate investment, traditional real estate investment trusts REITs often lack development projects and focus on income distribution, limiting upside potential.

Asset tokenization offers a compelling solution for the challenges of the traditional private capital market. By fractionalizing assets into tradable tokens, it democratizes access, opening doors to a wider pool of investors who might not have been able to meet minimum investment requirements before.

Imagine a future where private real estate functions like the stock market. We can invest in specific projects or funds, not just large, pre-packaged portfolios, and enter and exit positions with greater ease, fostering a more dynamic market.

Cryptocurrencies

A cryptocurrency is a medium of exchange, created and stored electronically on the blockchain using cryptographic functions to conduct financial transactions and to control the creation of monetary units. Cryptocurrencies are traded on a centralized or decentralized cryptocurrency exchange.

Common characteristics of cryptocurrencies

• No intrinsic value: Cryptocurrencies don't have inherent worth like gold or real estate. Their value is based solely on what people are willing to pay for them.
• Digital form: They exist solely as digital assets on a blockchain network, a distributed ledger technology.
• Decentralized supply: Unlike traditional currencies controlled by central banks, cryptocurrency supply is predetermined and often capped, managed through code on the blockchain.
• Decentralized governance: No single entity controls cryptocurrencies. Transactions are verified and secured collectively by a network of computers.
• Mostly unregulated (for now): Cryptocurrencies’ regulatory regimes remain largely undefined in many jurisdictions.

Common use cases of cryptocurrencies

• Payments
• Investments
• Lending, borrowing, and yield farming
• Foreign exchange
• Cross-border payments and remittances

Non-fungible tokens (NFTs)

Non-fungible tokens (NFTs) are unique digital certificates that represent ownership of a digital or real world item, such as images, music, videos, and digital artwork. Unlike fungible assets like money (where one dollar is the same as any other), each NFT is one-of-a-kind and cannot be replicated.

Think of them like digital certificates of authenticity for the digital world.

Common characteristics of NFTs

• Unique: Each NFT is distinct and cannot be replicated, making it one-of-a-kind.
• Indivisible: NFTs cannot be divided into smaller units like cryptocurrencies.
• Ownership: NFTs are owned and recorded on a blockchain, providing transparency and proof of ownership.
• Interoperability: NFTs can be bought, sold, and traded across various platforms and marketplaces.
• Programmable: NFTs can contain programmable features, such as royalties and smart contracts, enabling creators to earn ongoing revenue.

Real examples of NFTs

• Bored Ape Yacht Club
• CryptoKitties
• CryptoPunks
• Decentraland

Interestingly, NFTs can be tokenized for fractional ownership. For example, Bored Ape #2371, a premium NFT from the highly coveted Bored Ape Yacht Club (BAYC) collection, was tokenized into economic interests by InvestaX. This move allowed the broader community to share in the ownership and underscores InvestaX's commitment to fostering innovation in the digital asset space.

Check out our blog for details of the tokenization of Bored Ape #2371.

Central Bank Digital Currency (CBDC) / Stablecoins

A central bank digital currency (CBDC) or stablecoin uses a blockchain-based token to represent the digital form of currency backed by a reserve asset.

Central Bank Digital Currencies (CBDC)

• A central bank digital currency (CBDC) uses a blockchain-based token to represent the digital form of a fiat currency of a particular nation
• Unlike decentralized cryptocurrency projects like Bitcoin, a CBDC would be centralized and regulated by a country’s monetary authority.

Examples of CBDC: 

• Nigeria's eNaira (Oct 2021)
• China's e-CNY (pilot April 2020)
• India's e-Rupee (pilot Dec 2022)
• Russia's digital ruble (pilot Aug 2023)

Stablecoins

• Stablecoins are cryptocurrencies that attempt to peg their market value to some external reference (i.e. US Dollar or commodity’s prices such as gold)
• They achieve their price stability via collateralization (backing) or through algorithmic mechanisms of buying and selling the reference asset or its derivatives.

Examples of stablecoins: USDT, USDC, DAI, XAUT, TUSD.

Fiat-backed stablecoins, primarily USD-pegged tokens, are part of the RWA token market, currently dominate the RWA market value.

Does It Require A License To Issue RWA tokens?

RWA tokens are part of the digital asset landscape. They can be considered digital securities or not. Their category determines the applicable licensing requirements.

In the RWA space, determining whether a tokenized RWA is categorized as security boils down to:

• the asset being tokenized
• the token’s structure
• the regulatory definition at play, which varies by country

The predominant structure is where the RWA is placed under the ownership of an entity and the entity is then tokenized and issued through a pooling of funds from multiple investors, giving investors indirect interests in the underlying RWA. These tokens should be regarded as securities.

Another type of structure that exists is one where RWAs are tokenized directly and typically aren't considered securities. But this structure appears to be less common because of issues such as impracticability, non-fungibility, lack of regulatory clarity, and limited use cases.

 As for RWA tokens that are classified as securities, there is a licensing requirement to issue them.

Find it challenging to navigate the license requirements for RWA tokenization? Check out the license matrix for asset tokenization, created by InvestaX’s legal team.

Regulatory Framework For Issuing Digital Security Tokens in Singapore

Any Offer or issue of Digital Security Tokens in Singapore must comply with applicable securities laws i.e., Securities and Futures Act (Cap. 289) (SFA) and the Financial Advisers Act (Cap.110)(FAA). We generally see the following intermediaries facilitate any offers or issue of digital securities tokens:

• An intermediary who operates a platform on which one or more offerors of digital security tokens may make primary offers or issues of digital tokens (“Primary Platform”); (Requires CMS License regulated by the SFA)
• An intermediary who provides financial advice in respect of any digital tokens; (“Financial Advisor”); (Regulated under FAA)
• An intermediary who operates a platform at which digital security tokens are traded (“Trading Platform”); (Requires RMO License regulated by the SFA)
• An intermediary who safekeeps or custodizes such digital tokens (“Custodian”)

Digital Payment Tokens (DPT) are different from the Digital Security Tokens and are regulated by the Payment Services Act, 2019 (PSA). DPT is defined as any digital representation of value that is expressed as a unit, not denominated in any currency or pegged to any currency, intended to be a medium of exchange accepted by the public as payment and can be transferred, stored or traded electronically and are regulated. So DPT, essentially covers all cryptocurrencies, virtual currencies, and utility tokens. Any person/entity carrying on a business of providing any service of dealing in DPT or any service of facilitating the exchange of DPT’s must be licensed under the Payment Services Act.

InvestaX’s tokenization software-as-a-service (SaaS) is licensed by MAS (Monetary Authority of Singapore). We hold a Capital Markets Service License under the Singapore Securities and Futures Act (Cap. 289) and can help issuers conduct "offerings" 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. 

The Future is Tokenization With InvestaX

InvestaX is at the core of the Real World Asset (RWA) industry. We provide a leading MAS-licensed asset tokenization SaaS platform that enables the issuance, primary distribution, secondary trading, and custody of real-world asset (RWA) tokens and security tokens for private market assets in a legally compliant manner.

Contact InvestaX for a consultation on your asset tokenization strategy.

‍