Tokenization is emerging as a new way for businesses to transform traditionally illiquid assets into digital investments that can be divided, distributed, and traded. By creating non-fungible tokens (NFTs) representing assets such as company shares or physical products, businesses could potentially fractionalize ownership and open investment opportunities to a broader group of participants.
However, business tokenization also raises significant questions about valuation, regulation, and investor protection. Unlike conventional securities markets, where established rules govern disclosures, valuations, and intermediaries, NFT-based investments may introduce uncertainty about who verifies the underlying assets and determines what they are worth. As companies experiment with tokenizing equity and other assets, these concerns could become increasingly important for regulators and investors alike.
The concept is that a business creates Non-Fungible Tokens (NFTs) that represent its assets such as its stock and products. Then the NFT is tokenized and fractionalized so that it can be more easily distributed and traded.
I expect the SEC will almost certainly make this difficult to implement in the U.S. It is unclear if any NFT platform vets the provenance before issuing the NFT, but I doubt it. If the NFT represents a valuation of a company, what regulated agency determined that valuation?
If cryptocurrencies make you queasy because their value is based on market perception then NFTs that in theory represent physical items or some fraction of a business should have you running for the hills. This is not for the faint of heart. I wonder what regulated entity decided Genius Marketing is valued at $8 million:
“Among the attracted partners is Genius Marketing – an EdTech company from Eastern Europe and the first company to tokenize its business using the Binaryx platform. Oles Timofeev, Founder and CEO of Genius Marketing, commented on the partnership:
“Tokenization will help us boost expansion and scale our business in the global market. Genius Marketing aims to be an international educational platform and onboard users worldwide. With tokenization, this process will be cost-efficient and prompt. As an EdTech company that provides online education, we want to be at the edge of innovations. That is why we rely a lot on our partnership with Binaryx.”
Genius Marketing offers entrepreneurs a variety of educational programs on digital marketing. The company has a preliminary valuation of around $8 million, with 10% of its shares slated for tokenization and subsequent sale. The estimated amount of investments to be attracted stands at $800,000 with a hard cap of $1 million.
A recent report by Deloitte states that tokenization could unlock trillions of euros in currently illiquid assets, transforming the financial space into a much faster, cheaper, and inclusive ecosystem. Transparency Market states that the tokenization market is set to grow to as much as $7 billion by 2026, while reports released at The World Economic Forum forecast that 10% of the world’s GDP, standing at $10 trillion, will be transformed into cryptographic assets within the next ten years.
In related news, OpenExO, a company founded by serial entrepreneur Salim Ismail, announced the launch of a platform dedicated to the tokenization of the global economy.”
Business tokenization has the potential to make ownership of traditionally illiquid assets easier to divide and trade, but greater accessibility does not eliminate the underlying risks. If an NFT represents a stake in a company or another asset, investors still need confidence that the asset exists, its ownership is clearly established, and its valuation can withstand scrutiny.
Those issues could prove particularly important as tokenization expands into areas that resemble conventional securities and investments. Regulatory oversight, reliable valuations, transparency, and verification of asset provenance may ultimately determine whether business tokenization develops into a viable financial model or remains a highly speculative corner of the digital asset market.
Overview by Tim Sloane, VP, Payments Innovation at Mercator Advisory Group