Tokenization, its freedom and complexity? 3rd part of the interview with CEO of Forctis AG, Eduardo Salazar and Isabelle Ganz former FINMA employee, Co-founder of QUORUS GmbH and COO of Forctis AG

“person holding iPhone” by NeONBRAND on Unsplash

We continue posting advice from Eduardo Salazar, CEO at Forctis. They are setting up a completely new token and developing a new asset representation model. The model is based on a middle-ground between “computational biology, statistical mechanics and the latest thinking in economic theory”.

Today Eduardo is going to tell us about the specifics of his token and the issues it’s called to solve. ⬇️⬇️⬇️

Tokenization, its freedom and complexity.

Forctis token concepts. The idea of the project is to create a separate presentation system which is basically a polymorphic token. That is, a token which represents a different asset for every single individual in a black room. These tokens are either liquid, or reaffirm the property rights of those assets, depending on the will of the owner. There is a bit of confusion for those jurisdictions where financial inclusion is important.

Nowadays, you want people to become included in some way in the banking system, and be a part of the formal world rather than the black market economy. This token that we are building represents easily the property rights over the assets people own. As with physical rights over money, you can sign any asset to the protocol, and even transfer ownership within it.

Tokenization issues to be taken care of. One of the neglected issues of tokenization is that you can tokenize pretty much anything. And this is what makes the tokenized asset so questionable — is it really the asset that we’re describing in this digital representation, or is it just a code with no money behind it? We have to be hundred per cent sure, especially when talking about capital markets with no trusted intermediary effectively taking care of that representation gap. Finding a way to mitigate the risks is a way to gain trust. Here is where the Forctis’ protocol provides the representational guarantee, that effectively mitigates the gap occuring natively and stabily, due to the blockchain technology.

Assets tokenization is the way for the world to develop. The question is how to mitigate the risk to counterparties so that it effectively breaks down to zero risk. You need to attract the third party here, to establish a connection between the real and the digital world. That requires a participant, who will be effectively willing to underwrite that work. Can you make it reliable? Can you provide for whatever is represented by the token, so it will reassure the third party?

Risk decoupling When you apply for a loan, there are 2 things a bank has to consider: firstly, your repayment capacity. And second — the quality of collateral if the bank asks for security. And sometimes people with certain types of collateral are not able to get a loan because they have the asset, but they don’t have the liquidity, or the access to liquidity, to eventually mitigate against the risk of the repayment of the loan. In this sort of structure, you decouple the risk because you have one party which will effectively take care of the collateral.

And then there is a separate risk, which relates to the actual people who are willing to lend money — those who don’t need to worry about the representational risk as its proved by someone else. If I lend you a tokenized asset and you don’t pay me back, then there needs to be a third party to effectively take care of payment. Whereas, in the real world we’ll be able to recover that asset only against the party who tokenized it.

The difference between Forctis’ token and securities. In this digital world, with a parallel life, there is no difference between managing and tokenizing assets. Of course, property rights in immovable assets can be registered, and eventually also turned into tokenized property, but with more difficulties. It is something very similar to what the security token creators were thinking, though with a clear legal basis.

For example, you issue a security token as a representation of equity in a company, giving the token the voting and dividend rights. Those rights only exist to the extent that actual shareholders are willing to receive the dividends. So, the token holders may have rights on dividends, but won’t have a say as to whether or not the dividends will be distributed. Therefore, I might subscribe to the security token on the basis of a promise that the dividend would be paid, but I have no control over that happening. It depends on the shareholder. So the question here is about someone stepping in the middle and saying “Right, I can effectively guarantee that representational risk, and the probability that the actual shareholders are to be paid what’s promised.” This person may even sign a contract with the token holders that promises the token holders a dividend payment. The concept applies at different levels, not just physical acceptance, even at equity level. But we still don’t know, until there is an actual gap which needs to be filled, and I think we have a technical solution to do so.

To know more about the solutions Forctis and Eduardo are planning to implement to the protocol, visit our Summit to participate in the case-study and Forctis token presentation: