In today's financial world, the through crowdfunding and asset tokenization have emerged as innovative forms of investment that have revolutionized the way people can participate in financial markets. These processes offer unique opportunities for investors, but what exactly are they and how do they differ from each other?
What is crowdfunding?
First of all, crowdfunding or collective financing It is a financing model that brings together a large number of people to contribute small amounts of money in order to finance a project, company or initiative. This model has gained popularity thanks to online platforms that allow entrepreneurs and companies to present their projects and attract potential investors.
A prominent example of crowdfunding is the Kickstarter platform. From this platform, entrepreneurs can present creative, technological or social projects and attract investors in exchange for rewards, such as exclusive products or recognition in the credits of a film. A particular idea that allows anyone to present projects and seek the necessary financing among those interested in it to make them a reality.
Types of crowdfunding
Of course, crowdfunding can be divided into several types, among which we have:
- Donation: Participants contribute money without expecting anything in return, usually to support a charitable cause or a public interest project.
- Reward– Investors receive non-financial rewards, such as products or services, in exchange for their contribution.
- Loan: Investors lend money in exchange for a fixed financial return in the future.
- Investment: Participants invest in a company in exchange for shares, shares or future income.
Regulations applicable to crowdfunding
In addition to this, crowdfunding campaigns may be subject to different legal or platform regulations, depending on the country or region where they are carried out. These measures are intended to protect investors and ensure that companies offering securities through crowdfunding comply with securities laws.
For example, in the United States and Europe (following Regulation (EU) 2020/1503), crowdfunding campaigns require compliance with some regulatory processes, among which we can generally highlight:
- The need for registration of crowdfunding platforms: In accordance with laws and regulations, crowdfunding platforms must comply with the registration and approval requirements of the competent bodies in their region in order to operate.
- Public participation system: Crowdfunding platforms must have a publicly accessible system that will provide equal participation opportunities to all stakeholders who wish to participate in the early capital raising activities of startups and early stage companies.
- Respect investment limits: Due to the risks involved in this form of investment, there are limitations on how much can be invested during any 12-month period in these transactions. These limitations depend on the investor's net worth and annual income, and of course on applicable regional regulations.
- Transparency: Platforms must ensure the creation of a public registry of all authorized crowdfunding providers. This measure provides investors and platforms with supported information, preventing fraud.
- Inverter protection: Platforms must develop mandatory measures, such as continuity plans, investor profiles and the provision of relevant information. These efforts seek to provide investors with a greater understanding of the risks and implications of their projects.
In summary, crowdfunding activities are duly regulated in order to protect investors, but with all this, you must understand the risks that any investment entails and know in advance the operation of the platform and project in which you are participating. Although, it is also clear that the regulations required for crowdfunding are much lower than those that can be applied to the tokenization of assets that we will review below.
What is asset tokenization?
When we talk about asset tokenization, we are talking about a process that involves the conversion of rights to an asset into a digital token on a blockchain. In this way, tokenization makes it possible to represent tangible and intangible assets, such as real estate, works of art, shares or debt, through digital tokens that can be exchanged more efficiently and transparently on specific exchange platforms.
A clear example of asset tokenization is when a real estate company decides to tokenize a commercial building. Instead of selling the entire building to a single investor, the company can divide the property into tokens that represent proportional shares of the property. Investors can then purchase these tokens, giving them rights to a specific portion of the building and its income.
How asset tokenization works
To achieve this, asset tokenization follows a fairly complex process, in which we can highlight these points:
- Asset selection– An asset, which can be real estate, artwork, stocks, or other assets, is chosen to be represented digitally through tokens on the blockchain.
- Token Creation- A digital token is issued that represents a fraction or the full value of the selected asset. This token is backed by the value of the underlying asset and is recorded on the blockchain, ensuring the authenticity, traceability and security of the transaction.
- Immutable record- Information related to the issuance and transactions of tokens is immutably recorded on the blockchain. Each transaction is recorded transparently and securely, guaranteeing the integrity of the ownership of the assets represented by the tokens.
- Exchange on blockchain platforms: Tokens can be exchanged on blockchain-based exchange platforms, where investors can buy, sell or transfer their shares in the asset represented by the tokens securely and efficiently.
- Normative compliance: The issuance and management of asset-backed tokens on the blockchain must comply with applicable regulations and standards, which may include information disclosure requirements, verification of investor identity, and compliance with securities laws.
Differences between crowdfunding and asset tokenization
Knowing all this we can finally talk about the differences between crowdfunding and asset tokenization. And those fundamental differences would be:
- Nature of investment: In crowdfunding, investors can receive non-financial rewards, loans with interest or shares in the company. While in asset tokenization, investors acquire tokens backed by tangible or intangible assets, giving them rights to the value and income associated with the underlying asset.
- Transparency and efficiency: Although crowdfunding can provide access to investment opportunities, monitoring and transparency processes can vary significantly depending on the type of crowdfunding. While asset tokenization is based on blockchain technology, which provides greater transparency, efficiency and traceability in transactions, since each operation is immutably recorded in the blockchain and this can be reviewed and audited. publicly.
- management : The liquidity of investment in crowdfunding may be limited, as investors may have difficulty selling their shares before the project matures or is liquidated. While in the tokenization of assets, the tokens can be exchanged in secondary markets, which provides greater liquidity to investors, since they have the possibility of selling their shares more quickly.
Regulation: the greatest differentiation between crowdfunding and asset tokenization
Now, the greatest differentiation undoubtedly occurs at the regulatory level. And although crowdfunding and asset tokenization are two forms of financing that have gained popularity in recent years, they differ in terms of their regulation, especially in the legal and financial sphere.
On the one hand, crowdfunding has a well-defined and regulated model, which makes it very easy to participate in this type of investments and platforms. For example, just log in to a platform like Kickstarter and you will have access to many crowdfunding options. However, in the case of asset tokenization everything changes. And in terms of regulation, the tokenization of assets is in an initial stage and its regulatory framework varies considerably between jurisdictions. Some countries have adopted specific regulations for token offerings, while others are in the process of developing them.
For example, opening crowdfunding for a new gaming platform project can be a very simple thing to do. But if you want to tokenize assets for the same purpose, you must comply with all the regulatory requirements that allow you to carry out the corresponding ICO. The situation becomes more complex at the regulatory level if you are already an established company and want to do an IPO or directly an STO (Securities Public Offering), since each of these models gives investors different rights, and, therefore, require different regulatory requirements.
In summary, while crowdfunding and asset tokenization share similarities in terms of fundraising, they differ significantly in terms of their regulation. While crowdfunding is more established and subject to specific regulations in many countries, asset tokenization is emerging and its regulatory framework is still evolving, presenting unique challenges and opportunities for market participants.
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