ACR #22: Let's get tokenized!
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Nigeria’s Securities & Exchange Commission is set to allow digital exchanges to issue tokenized assets backed by equity, debt and property. But not cryptocurrencies.
The agency's head of securities and investment services told Bloomberg, “We always like to start, as a regulator, with a very simple clear proposal before we go into the complex ones.” Possibly referring to the decision to leave out cryptocurrencies from the new regulatory framework.
What this means
For the uninitiated, tokenized assets are digitized representations of another physical or digital asset. Tokenization converts an asset into a digital unit that can be used, traded and managed through a distributed ledger technology like the blockchain.
For example: Suppose you have a house worth $50,000 in Lagos, Nigeria. Through asset tokenization, you could convert ownership of this property into 50,000 tokens — each token representing 0.00002% of the house.
Let’s say you want to raise $10,000 through equity on the house but don’t want to sell the whole house. You can sell 10,000 tokens representing a 20% equity stake in your house on a digital exchange to as many people as you want to raise your $10,000. Since the blockchain is digital, transparent and largely immutable, everyone can always verify their ownership stake on the blockchain. It will also be possible to quickly re-sell the tokens to others who want to buy. This example applies to stocks, government bonds, corporate debts, startup equity, etc.
In theory, asset tokenization lowers the cost of raising funds, democratizes access to investments, creates market liquidity, allows real-time market settlement and enables product innovation.
In reality, asset tokenization hasn’t picked up as expected. Switzerland has been at the forefront of it for the past seven years, and most of the projects are still in the proof of concept stage. Tokenized stocks, which used to be all the rage, have also been stifled.
The main reason is that most tokenized assets are securities, which fall under the purview of a government regulator in whichever country you operate. As is common knowledge, regulators are not in the business of ‘move fast, break things & apologize later’ like startups. Innovation will go as slow as regulators dictate in this space.
In the case of Nigeria, the regulator will require digital exchanges to go through a year of “regulatory incubation” where they can only offer limited services, and that “by the 10th month, we should be able to make a determination whether to register the firm, extend the incubation period or even ask the firm to stop operation,” the agency securities head told Bloomberg.
The good news is that startups in the country at least have regulatory clarity on what’s required.
What else?
Zimbabwe’s central bank to issue gold-backed digital currency: Report
In an effort to save its local currency, the Reserve Bank of Zimbabwe is set to introduce a gold-backed digital currency to serve as legal tender in the country.
G7 seeks to help developing countries launch CBDCs
The G7 wants to help developing countries find the best way to introduce central bank digital currencies (CBDC) into their economies.
Nestcoin spins off new gaming community, Metaverse Magna, names Yemi Johnson as CEO
Metaverse Magna (MVM), an African gaming community that allows players to earn in crypto, now has a new CEO, Yemi Johnson. He’s transitioning the company from a P2E gaming guild to a social gaming and eSport platform.
Product of the week
It is a self-custody crypto wallet that enables users to easily send and receive crypto, exchange local currencies for stablecoins (USDC, BUSD, USDT), and securely store and save them.
What’s the meme?
What we are reading
Exit Liquidity by Arthur Hayes
Bitcoin ‘Halving’ Due Next Year Spurs Predictions of Rally in Token Past $50,000 (Bloomberg)
The Case for Regulating, Not Banning, Crypto (Coindesk)