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FinTech

Tokenisation of real world assets (RWAs)

Introduction

Tokenisation of real world assets refers to breaking down high-value properties, whether tangible (such as art pieces) or intangible (such as financial instruments and intellectual property), into digital tokens which are stored on a blockchain, similar to virtual ownership certificates that can represent objects of any value or type. Of late, tokenisation of real world assets is growing and holds extensive promises as stepping stones for innovation.

Tokenisation of RWA vs cryptocurrency

A point to note is that tokenized assets are different from cryptocurrencies, although both are generated in the form of digital tokens. Cryptocurrencies are digital forms of currency and are a type of payment method on a blockchain, caused by decentralised means and may not inherently derive their value from underlying assets. Some famous examples include Bitcoin and Ether.

Tokenisation advancements in private markets

Based on market estimates, it is known that private markets are an area of traditional finance that can benefit greatly from tokenisation, with research indicating that tokenisation has the potential to grow into a $16 trillion worldwide business by 2030.

Within Asia, countries like Hong Kong, Japan, Singapore and Thailand have regulations that are aiding the growth of tokenisation. This can be seen from Japan’s implementation of clear guidelines on the regulation of digital tokens under an amendment to the Act on Settlement of Funds and the Financial Instruments and Exchange Act, and Hong Kong’s new regulations for digital assets trading platforms.

Legal perspective

Tokenised assets and their related activities, such as issuance and trading, may be regulated under Singapore law depending on the type of the underlying assets, whether the tokens have any features that cause it to be any regulated products, and whether the activities constitute any regulated activities, under the relevant legislation such as the Securities and Futures Act 2001 and the Commodities Trading Act 1992. There may be certain legal or regulatory requirements that would need to be complied with or licences to apply for.

Conclusion

Before commencing a project or any business activity relating to tokenized assets, legal advice should be obtained. Our lawyers would be able to advise on the applicable regulations and provide guidance on how to take your project or business forward in a manner compliant with Singapore law.

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