WHITEPAPER 1.0 August 2020 Tokenizer Chain Pr emier En d -to -En d Decen t r a l iz ed F in a n ce In f r a st r u c t u r e www.tokenizer.cc 4 5 13 15 16 18 21 24 29 31 34 37 39 45 48 49 50 51 Contents abstract The white paper introduces the initial coin offering (TOKN) for the Tokenizer platform, an Ethereum-based decentralized finance market for the tokenization of assets, trading of tokens and coins, and fundraising. It outlines all the information concerning the business model of the company, marketing plans, products, services, and further details about the Tokenizer ecosystem. 4 Tokenizer Chain WHITEPAPER executive summary The Tokenizer Vision is to finance and facilitate humanity's next ventures with a more effective infrastructure for capital formation and distribution. We are on a mission to democratize and reinvent the world of banking and investments. Tokenizer is made of three platform products and the Tokenizer Chain. Initially, the platform products will run on the Ethereum network. In parallel, we will develop a Tokenizer chain purpose-built for banking and investments. Tokenizer Chain Platform Apps Token Issuer Launchpad DEX 5 Tokenizer Chain WHITEPAPER Token Issuer Token Issuer is an asset tokenization feature that enables asset holders to represent digital and non-digital assets on the blockchain. Asset-backed tokens can be customized to meet various local and global compliance rules and issued to both limited investor pools and the general public for purchase. Besides the issuance of tokens, the Token Issuer supports several other control options post-issuance, such as: Various forms of assets, such as real estate, stocks, bonds, PE funds, hedge funds, VC funds, commodities, revenue flow, e.g., can be tokenized for both new and existing projects. Also, bundles of tokenized assets can be created for compatible tokens. Accredited and approved investor pools can be self-managed or connected to third parties to enable compliance at all times. Verification List Management Dividends and other capital flows can be routed via the platform to large numbers of participants in an efficient and compliant manner. Dividend DIstribution https://issue.tokenizer.cc 6 Tokenizer Chain WHITEPAPER Launchpad The Tokenizer Launchpad enables new projects to fundraise from a vast pool of investors. We are building a global marketplace to facilitate funding of projects all over the world while providing tools to entrepreneurs to manage fundraising and comply with their local rules and regulations. https://invest.tokenizer.cc 7 Tokenizer Chain WHITEPAPER ◆ ◆ ◆ ◆ ◆ ◆ ◆ The Tokenizer DEX is a purpose-built, decentralized, on-chain exchange that facilitates the trading of tokens in a transparent and compliant way. The exchange supports spot, margin and futures trading of tokenized assets as well as bundles of tokenized assets. Tokenizer Chain is purpose-built for the finance industry to enable frictionless issuance and trading of tokens. The primary features of the Tokenizer DEX are: Identity Automated Compliance High-Speed Trading Low-Cost Mass Distributions Smart Contracts & On-chain Escrow System Derivatives & Bundled Products Smart Extensions https://exchange.tokenizer.cc 8 Tokenizer Chain WHITEPAPER DEX Identity Automated Compliance Fast & Efficient Security & Encryption Tokenizer has partnered with some reputable KYC/AML providers to verify identities on-chain and perform checks during transactions. By moving the process of identity verification on-chain: ▸ Investors do not need to sign up for KYC and verification in every exchange; ▸ Investors can freely trade tokens directly without intermediaries, outside exchanges; ▸ Projects can introduce trading of their assets into a global pool of investors; ▸ Projects do not have to worry about strict control of the holding of their asset post issue as they are handled on-chain. Compliance rules for sellers, buyers and tokens are baked into the chain and checked instantly in every transaction, guaranteeing a secure, reliable, and consistent trading experience. The Tokenizer Chain will enable a high-speed, secure, compliant, efficient trading of tokens on-chain. Data in the Tokenizer Chain is encrypted using various methods, like amorphic encryption, for private keyless data while trading on-chain. 9 Tokenizer Chain WHITEPAPER Low-Cost Distributions Smart Contracts & Escrow Derivatives & Bundled Assets Smart Extensions Tokenizer Chain will allow low-cost distribution of capital to thousands of token holders, opening the potential for new business models. For example, rent from a real estate project can be shared and distributed to thousands of token holders. Smart contracts and an Escrow System will run on the Tokenizer Chain to implement predefined conditions, removing administrative overhead. Smart contracts will also be used to check and execute custom compliance or private trading rules. Similar assets can be bundled together, and different derivative products can be created, to open up new forms of capital markets and empower both investors and projects. The Tokenizer Chain can be extended to create private and semi-private chains. The chains can leverage the Tokenizer infrastructure while maintaining the internal trading rules to develop private banking tokens, stable coins, and Central Bank Digital Currencies (CBDs). 10 Tokenizer Chain WHITEPAPER The Tokenizer Token (TOKN) is the native currency of the Tokenizer Chain and is used to fuel all the activities of the ecosystem. Tokenizer aims to completely transform the global investment industry and eradicate several key pain points. This will democratize investments and spur an increase in direct market participation and expansion. Expansion of capital markets will help finance future ventures and endeavours of entrepreneurs, accelerating the process of human civilization. 11 Tokenizer Chain WHITEPAPER the Tokenizer vision In the digital age, it takes a single click to buy a match ticket from a club's online store or an iPhone gadget from Apple. However, if you want to invest in the stock market or apply for a loan, the whole experience is more time-intensive. Most of these transactions take several days to months to be settled. Besides, assets such as precious metals, real estate, collectibles like art and antiques are not easily transferable, often forcing buyers and sellers to put up with mountains of paperwork and drawn-out procedures. By representing real-world assets as digital tokens on a blockchain network, tokenization unlocks these assets' value and makes it possible to trade them in real-time. Currently, cross-border payments are flawed with delays, complexity, and inefficiencies. While payment is the main ingredient of global commerce, real-time payment is still a dream. The ability to represent physical assets on a blockchain brings the benefits of a secure and decentralized ledger while retaining their attributes. In asset securitization, which began in the 1970s, contractual obligations, like mortgages, personal debt, and receivables, are pooled, and their cash flows traded as standard units. Tokenization goes a step further by "monetizing the right to use," instead of restructuring cash flows like securitization. Most financial assets are already digitized, like when fiat money is represented as numbers on a screen. Nevertheless, tokens enable both liquid and illiquid assets to move swiftly across networks and increase cross-border trade opportunities by eliminating geographical barriers. Tokenization unlocks new markets formerly frozen, or underserved, and brings fractional ownership to assets. The Token Industry: AN Overview 13 Tokenizer Chain WHITEPAPER From 2015 to early 2017, the token industry attracted a lot of attention from a new class of investors, seeking to take advantage of the phenomenal growth and returns from cryptocurrencies. 2017 then became a crazy year for the token industry with digital tokens raising almost $7.4 billion through Initial Coin Offerings (ICOs). ICOs proved to be a novel way of raising funds for blockchain-based start-ups. Regulators worldwide were relatively silent on tokens due to the confusion of whether to classify them as securities, commodities, property or something else. As regulatory guidance has been shaping up since 2018, two primary impacts have emerged. First, the "Wild West" (a term used to refer to the ICO market) is over for the token industry participants. It is now clear that in the US and other jurisdictions, compliance with the existing laws is required. The second impact of the token industry's regulatory evolution is the clarity between a utility token and a security token, which has led to the emergence of Security Token Offering (STO). Security tokens are unsurprisingly gaining mainstream adoption in the token industry, as the institutional presence on the cryptocurrency market reaches unprecedented heights. Security tokens are unsurprisingly gaining mainstream adoption in the token industry, as institutional presence on the cryptocurrency market reaches unprecedented heights. 14 Tokenizer Chain WHITEPAPER Asset tokenization is the process of converting ownership rights in a tangible or intangible asset into a digital token on a blockchain. It can be compared to the traditional securitization process, but with a modern twist. Asset-backed tokens (ABTs) are created via a form of initial coin offering commonly known as a security token offering to distinguish them from other tokens. An STO is used to create a digital representation- a security token- of an asset, implying that a security token could represent company shares, ownership of a property, or participation in an investment fund. ABTs can be traded on a secondary market, like the Tokenizer DEX. You can tokenize Real estate, stocks, bonds, domains, venture capital, metals & commodities, intellectual property, FX & derivatives, identity, luxury goods, hedge funds, art, private equity, corporate debt, and others. Tokenization can create a more effective and fair financial world by significantly minimizing the friction involved in the fundraising, investing, and trading of securities. It will make the financial industry more accessible, cheaper, faster, and efficient, unlocking trillions of dollars in currently illiquid assets, and significantly increasing trade volume. What is Tokenization? Tokenization can create a more effective and fair financial world by significantly minimizing the friction involved in the fundraising, investing, and trading of securities. 15 Tokenizer Chain WHITEPAPER Physical tokens have long been used to represent real money. Casinos use chips and banknotes to represent ownership of an underlying currency. In 2001, TrustCommerce created the concept of tokenization to protect sensitive information for clients. A solution that secured cardholder information, preventing theft. TrustCommerce developed TC Citadel, which allowed customers to reference a token instead of their card data. TrustCommerce could then safely process a transaction on behalf of its customers without exposing their data. From art to buildings, the way we invest in assets could be about to change with the arrival of tokenization fundamentally. The act of tokenizing assets threatens to disrupt many industries, particularly the financial industry, and those who are not prepared risk being left behind. Since 2001, digital tokens have evolved a great deal. With the invention of blockchain technology, a vast number of use cases have emerged. Tokens can now be issued to represent a tangible or intangible asset, and offer a great deal of flexibility over traditionally illiquid assets. For example, a fraction of an asset can be owned when it is tokenized. Smaller investors, unable to contribute to large commercial projects, can now own a small portion of a large scale project. The Rise of Tokenization 16 Tokenizer Chain WHITEPAPER Tokens can now be issued to represent a tangible or intangible asset, and offer a great deal of flexibility over traditionally illiquid assets. Blockchain provides low fees on transactions, creating the opportunity to raise funds globally from a wide array of investors. Ownership of these assets is indisputably recorded on the blockchain, independent of the asset. The future of asset-backed tokens and blockchain-based derivatives looks promising. Tokens allow the traditional market structure to be reimagined, creating opportunities for businesses and efficiencies for investors and issuers. As jurisdictions around the world are proactive with token issuance, it's just a matter of time before we see regulators, such as the SEC and FiNRA, following suit. Adoption from regulators will create more efficient market infrastructure solutions than the current ones and spark innovation within traditional finance, unlike anything we've seen in the past. The Rise of Tokenization 17 Tokenizer Chain WHITEPAPER From art to buildings, the way we invest in assets could be about to fundamentally change with the arrival of tokenization. The act of tokenizing assets threatens to disrupt many industries, in particular the financial industry, and those who are not prepared risk being left behind. Tokenization presents buyers and sellers of alternative assets the functionality to tap into opportunities never before experienced in finance, business, and society. Ease-of-use, slashed costs, distribution of rights and proceeds, and the ability to keep control of partially liquidated assets are among the ways Tokenizer helps users in new ways. Consider the opportunity for a company to distribute rights and proceeds for a fraction of the cost that major corporations now pay to distribute dividends and voting rights with shares of their stock. This price disruption will allow small profitable companies to distribute a portion of their profits to their shareholders in a pre-IPO setting, enabling them to come to the public market in an IPO with an established market price from the token market. With the automation of business processes provided by smart contracts, it will also be far easier to implement, both initially and as the company matures. The new opportunities for real estate owners are countless. Consider the opportunity for the owner of a building to distribute ownership of the building and rental revenue from the building to multiple corporations or relatives, like children. Together with the automated enforcement functionality available in smart contracts, owners and landlords can use tokenization to automate the enforcement of rental agreements or automate a suspension or change to the enforcement of rental agreements in the event of a natural disaster, state of emergency, or public health crisis. Residential real estate developers can now automate the rights assigned to buyers of condominiums, including voting rights, equity in the overall development, and revenue from commercial spaces in multi-use buildings. The economic community developed from one piece of property can more quickly and easily become tight-knit. New Ways of Thinking About Business & Society 18 Tokenizer Chain WHITEPAPER If resident owners of each condominium earn a small piece of the rent derived from the restaurant on the first floor, they save money on every meal they eat there and smile all the way to the bank every time they walk by and see it crowded with their neighbors. If every resident owner has a vested interest in the success of the business on the first floor, they are bound to support it and have hundreds of daily eyes on it. The restaurant’s primary customer base is its landlords, who all have a financial interest in eating there. Tokenization’s ability to quickly and easily develop complex financial community around an asset is a new way of thinking about economic community. Art is another famously illiquid asset. Owners of works by famous artists can now tokenize a work, or a portion of the work, and share it with the world. This provides the owner a current market-based valuation for the work, one that can be used to determine value in real time. As real-time market-based valuations of art come into conflict with professional appraisal values and insurance valuations, we anticipate some market disruption. The opportunity for buyers to own a piece of a famous work at global scale could be revolutionary for the entire industry and culturally egalitarian on a scale not seen since the advent of the Internet. Tokenization enables major museums to liquidate vast sums from their collections while retaining full ownership, custody, and possession. Ease-of-use, slashed costs, distribution of rights and proceeds, and the ability to keep control of partially liquidated assets are among the ways Tokenizer helps users in new ways. 19 Tokenizer Chain WHITEPAPER Problems Facing the Growth of This Technology Incomplete tokenization services Incomplete tokenization services User experience Compliance Trust Security Conflict of Laws Most tokenization platforms deal with the issuance of tokens only. Other key tokenization services, like a token marketplace, custody, investment platform, digital wallet, and debit cards, are outsourced to third parties. This creates legal friction regarding aspects, such as handling of custodians in case of bankruptcy. The token industry’s user experience in tokenizing and managing digital assets is below average. Since blockchain is a new technology, token issuers and investors are expected to master the art of interacting with wallets and smart contracts. There is a lack of clear regulations for cryptocurrencies generally, and asset-backed tokens specifically, in many jurisdictions, but this problem erodes annually on both fronts. The 2017 cryptocurrency bubble is still fresh in the minds of investors in the cryptocurrency space. The recent growth and popularity of Ethereum-blockchain decentralized finance businesses come with an uncertain measure of attention from hackers and crypto thieves. As national and international legal systems adapt to blockchain commerce and blockchain evidence, occasional conflicts with traditional laws and existing contracts become inevitable. Standards for proof of ownership of any asset vary broadly by national jurisdiction. Blockchain standards for proof of possession of physical objects are in their early stages. Tokenizer plans to further the study of this field. 20 Tokenizer Chain WHITEPAPER