Sam Reynolds

<div id="highlights-block_61c1b47aefad3" class="highlights">
 <ul>
 <li>Tokenized real-world assets haven’t taken off because while the technology might be sound, the legal side is shaky</li>
 <li>Companies attempting to tokenize real-world assets aren’t anything new. But these are tech companies without legal expertise</li>
 </ul>
 
</div>



Any trader knows the importance of a diversified, balanced portfolio. The dream for digital assets traders is to have their volatile crypto counterbalanced with tokenized real-world assets like real estate, art, or rare liquor.



But despite the numerous attempts at creating tokenization platforms over the past years across a variety of asset classes, nothing has quite captured the confidence of investors. Tokenized real world assets exist, but their volume is tiny compared to their non tokenized selves.



After all, the technology side of things isn’t overly complex; it’s the legal side that will literally make or break things.



“It&#8217;s a hugely complex legal problem,” explains <a href="https://www.dlapiper.com/en/hongkong/people/t/thiel-scott/" target="_blank" rel="noreferrer noopener">DLA Piper’s Scott Thiel</a>. “For an NFT of an artwork, and there’s a single token and single owner, the legal issues in there are relatively straightforward. The problem gets far more complex when you start thinking of higher value real-world assets.”



<div class="wp-block-image"><figure class="alignright size-medium"><img loading="lazy" decoding="async" width="300" height="300" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/12/DLA-Piper-Scott-Thiel-300x300.jpeg" alt="DLA Piper's Scott Thiel" class="wp-image-12994" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/12/DLA-Piper-Scott-Thiel-300x300.jpeg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/DLA-Piper-Scott-Thiel-300x300.jpeg?w=150 150w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/DLA-Piper-Scott-Thiel-300x300.jpeg?w=257 257w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/DLA-Piper-Scott-Thiel-300x300.jpeg?w=261 261w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/DLA-Piper-Scott-Thiel-300x300.jpeg?w=219 219w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/DLA-Piper-Scott-Thiel-300x300.jpeg?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/DLA-Piper-Scott-Thiel-300x300.jpeg?w=400 400w" sizes="auto, (max-width: 300px) 100vw, 300px" /><figcaption>Scott Thiel</figcaption></figure></div>



Thiel is DLA Piper&#8217;s lead TOKO partner based in Hong Kong. He says that the firm has been exploring tokenization for some time now, but just wasn’t confident in the legal soundness of the existing solutions out there. 



“We spent a considerable amount of time speaking with technology companies that were doing tokenization,” he said. “One of the challenges we had is they didn’t really share our vision of dealing with the more complex asset classes and the need for compliance with all these sophisticated financial services regulations.&#8221;



Most investors are going to want their tokenized asset to generate yield — rental income from a building, for instance — while also being able to benefit from the capital appreciation of the asset, all the while having it as liquid as any other token in their wallet.



Sure, there are existing TradFi structures out there like a REIT, but as Thiel puts it, “I’ve yet to speak to anyone that’s attached to or regularly trades in their REIT.”



The problem is tokenization products that offer yield would most likely be a security, which, if done the wrong way, can create legal headaches or worse.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“As you go into that space you quickly find that the digital asset can quickly cross the line from being an unrelated bundle of contractual rights to being a regulated security token, or a collective investment scheme, or some other financially regulated thing in whatever market you might be talking about,” Thiel said.</blockquote>



<h3 class="wp-block-heading">Where is demand strongest for tokenized assets?</h3>



There’s a perennial east versus west debate in crypto — are the trading desks in New York better equipped because of investor maturity and regulation than Hong Kong or Singapore — and the same goes for tokenization.&nbsp;



Thiel thinks that Hong Kong has the edge over Europe, which might be surprising since Switzerland is home to “arguably the most sophisticated digital asset regime on the planet”. One might think that given London’s proximity to it and ease of access, there would be a spillover effect.&nbsp;



“One thing that has been striking to me is the maturity of debate we saw at conferences in Hong Kong seemed to be the highest,” Thiel said. “From a topic point of view, the conferences in London sound a bit like what happened in Hong Kong last year.”



<hr class="wp-block-separator">
Get the day’s top crypto news and insights delivered to your inbox every evening.&nbsp;<a href="https://cms.blockworks.co/newsletter/?source=end" target="_blank" rel="noreferrer noopener">Subscribe to Blockworks’ free newsletter</a>&nbsp;now.
<hr class="wp-block-separator">

Toko Pursues Dream of Tokenized Assets

<div id="highlights-block_61b32a811ee75" class="highlights">
 <ul>
 <li>Bloomberg is reporting that Binance is in talks with PT Bank and its controlling family to set up a joint venture in country</li>
 <li>Indonesians have shown exceptional enthusiasm for digital assets, as the national stock exchange with its plethora of state-owned enterprises and other lethargic forms no longer excite investors</li>
 </ul>
 
</div>



Sensing a market opportunity in Indonesia, <a href="https://www.thejakartapost.com/news/2021/08/05/indonesia-now-has-more-crypto-investors-than-stock-market-investors.html" target="_blank" rel="noreferrer noopener">where crypto traders outnumber equity investors</a>, Binance is said to be in discussions with Indonesia’s richest family to create a local version of its exchange in-country in conjunction with the family’s bank and telecom.&nbsp;



According to <a href="https://www.bloomberg.com/news/articles/2021-12-10/binance-weighs-crypto-venture-with-indonesia-s-richest-family?utm_medium=social&amp;utm_source=twitter&amp;utm_content=crypto&amp;utm_campaign=socialflow-organic" target="_blank" rel="noreferrer noopener">Bloomberg</a>, the exchange is in discussions with the Hartono family, which controls PT Bank Central Asia and PT Telkom Indonesia. Bloomberg says the talks with Binance would likely involve both companies as Indonesia is increasingly a <a href="https://www.statista.com/statistics/802628/digital-device-usage-among-adults-by-device-indonesia/" target="_blank" rel="noreferrer noopener">mobile-first economy</a>, with many of the new middle class eschewing a PC in favor of a smartphone.&nbsp;



Binance is said to already have an investment in Tokocrypto, one of the country’s largest exchanges that’s considering an IPO in 2022.&nbsp;



Although Indonesia’s national religious council has declared cryptocurrency to be haram, or forbidden to be used by Muslims, as it is incompatible with Islamic Finance, this ruling isn’t binding as the country is nominally secular in its governance, even as it is the world’s largest Muslim-majority state.&nbsp;



Overall, the government has been supportive of the asset class. The Indonesian Trade Ministry Futures Exchange Supervisory Board gave crypto the green light as an asset class <a href="https://beincrypto.com/indonesian-regulator-accepts-bitcoin-as-tradeable-commodity/" target="_blank" rel="noreferrer noopener">in 2019</a>, while prohibiting its use as a payment mechanism.&nbsp;



The country is home to three stablecoins denominated in Indonesian rupiah: XIDR, from StraitsX, which also has a Singapore dollar denominated stablecoin, and Binance IDR, used primarily on the Binance-backed Tokocrypto exchange as well as the RupiahToken.



This report from Bloomberg follows a broader trend of banks in Asia setting themselves up for exposure to digital assets. Rules enacted earlier this year in Korea require exchanges to partner with local banks to ensure KYC and tax compliance, <a href="https://cms.blockworks.co/morgan-stanleys-rumored-bithumb-play-shows-institutional-interest-in-koreas-digital-asset-infrastructure/" target="_blank" rel="noreferrer noopener">starting an investment frenzy in-country</a>. In Singapore, <a href="https://cms.blockworks.co/singapores-dbs-reports-100-million-in-digital-assets-in-custody/" target="_blank" rel="noreferrer noopener">DBS opened up</a> an institutional trading desk for crypto while in Thailand <a href="https://cms.blockworks.co/thailands-scb-is-buying-51-of-bitkub/" target="_blank" rel="noreferrer noopener">local bank SCB bought a majority stake</a> in Thai exchange Bitkup.&nbsp;



Binance did not comment publicly on the report.



<hr class="wp-block-separator">
Get the day’s top crypto news and insights delivered to your inbox every evening.&nbsp;<a href="https://cms.blockworks.co/newsletter/?source=end" target="_blank" rel="noreferrer noopener">Subscribe to Blockworks’ free newsletter</a>&nbsp;now.
<hr class="wp-block-separator">