Tokenization of real world assets (RWA) is a game-changing use case of blockchain technology. In the infancy stage of the RWA industry, many issuers are uncertain about the cost structure associated with issuing security tokens, also known as RWA tokens.

In this blog, we will explore the various costs and investments involved in converting real-world assets to RWA tokens for issuers, addressing the key question: How much does tokenization cost?

Let’s get started!

The Tokenization Industry is on Exponential Growth

Tokenization, the process of converting real-world assets into digital tokens, has emerged as a significant trend in the financial and investment landscape. According to a recent report by InvestaX titled “2023’s Must-Read Tokenization and DeFi Reports: Insights, Trends, and Analysis", the growth of tokenization has been remarkable. The report highlights that in 2022, the global tokenization market reached a value of $2.7 trillion, representing a staggering 157% increase from the previous year. This growth trajectory is expected to continue, with BCG forecasts $16.1 trillion in values of tokenized assets by 2030.

The current landscape presents an opportune moment to invest in the tokenization space, as leading financial institutions are actively engaged in industry-wide development. Prominent reports from institutions such as JPMorgan, DBS, and MAS are overwhelmingly bullish on tokenization.

This exponential growth can be attributed to several factors. Firstly, tokenization offers increased liquidity and accessibility to traditionally illiquid assets such as real estate, art, and private equity. By converting these assets into digital tokens, fractional ownership and trading become more feasible, enabling a broader range of investors to participate.

Secondly, tokenization provides enhanced security and transparency. Blockchain technology, the underlying technology behind tokenization, ensures that transactions and ownership records are immutable and verifiable, reducing the risk of fraud or tampering. Additionally, the use of smart contracts automates and streamlines the execution of contractual terms, further enhancing the security and efficiency of asset transfers.

Furthermore, tokenization enables global investment opportunities and democratizes access to investment assets. Through blockchain platforms, investors from different parts of the world can participate in tokenized assets, breaking down traditional barriers such as geographical restrictions and minimum investment thresholds.

Now that you've gained insight into the asset tokenization trend, let's delve deeper into the associated costs of tokenization.

Decoding Costs Of Tokenization

Your first tokenized offering will probably cost you slightly more than traditional paper based offerings because you have never done it before. However, this is technology which is being upgraded and improved on a daily basis, so over time the cost of your offerings will become lower and lower each time, whilst the value tokenization brings to your investors and organization will continue to improve and grow with each offering.

It is important to note that tokenization does not remove the need for lawyers, broker dealers, exchanges custodians and other service providers who exist to facilitate the legal and compliant issue of any securities offerings.

Below, we break down the costs associated with tokenization.

1. Regulatory Compliance

One of the primary costs associated with tokenization of RWA is ensuring compliance with regulatory frameworks. Depending on the jurisdiction and asset type, there may be specific legal requirements that need to be met.

Engaging legal experts and regulatory consultants to navigate the complex landscape can be a significant expense. The cost varies based on the asset class, location, and the level of regulatory oversight required. Compliance costs can include legal fees, licensing fees, and ongoing reporting obligations. Ensuring compliance with regulatory frameworks is a primary cost of tokenization. This may involve engaging legal experts and regulatory consultants to navigate the complex landscape. The cost will depend on the jurisdiction, asset class, and level of regulatory oversight required. The range is typically between $5,000 and $50,000.

Also read: Real world asset tokenization - is a license needed?

2. Technology Infrastructure

RWA tokenization relies heavily on blockchain technology, which requires a robust and secure infrastructure. Developing or integrating with a blockchain platform to tokenize assets can be a complex process. This includes building smart contracts, establishing secure storage solutions, and implementing suitable consensus mechanisms. Additionally, ongoing maintenance, upgrades, and security audits contribute to the overall technology infrastructure costs. The range is typically between $10,000 and $100,000.

3. Token Development and Issuance

Creating and issuing security tokens involves technical expertise and resources. Developers and blockchain engineers need to design and deploy the token smart contracts, ensuring compliance with relevant security regulations. The costs associated with token development depend on factors such as complexity, customization, and the extent of required functionalities.

Additionally, the process of conducting know-your-customer (KYC) and anti-money laundering (AML) checks for token holders adds to the expenses. Creating and issuing security tokens involves technical expertise and resources. The costs depend on factors such as complexity, customization, and required functionalities. The range is typically between $20,000 and $100,000.

4. Asset Valuation and Due Diligence‍

Before tokenizing an asset, conducting thorough due diligence and valuation assessments is crucial. Professional appraisers, auditors, and legal experts may be required to evaluate the asset’s worth, verify ownership, and assess any potential risks or encumbrances. These processes ensure transparency and build trust among potential token investors. The costs associated with asset valuation and due diligence can vary significantly depending on the asset’s complexity and the level of scrutiny required. The range is typically between $5000-100,000.

5. Marketing and Investor Outreach‍

Once assets are tokenized, attracting potential investors becomes crucial to create liquidity and realize the benefits of tokenization. Engaging in marketing efforts and investor outreach campaigns incurs costs such as branding, digital marketing, legal compliance with securities laws, and participation in relevant investment conferences and events. The expenses for marketing and investor outreach can vary depending on the asset class, target audience, and geographical scope. The range is typically between $5,000 and $1 million.

6. Ongoing Compliance and Maintenance‍

After RWA tokenization, ongoing compliance is necessary to ensure continued adherence to regulatory requirements. This includes monitoring changes in securities laws, implementing necessary updates to smart contracts, conducting periodic audits, and managing investor relations. These ongoing compliance and maintenance costs contribute to the overall expense of tokenization. The range is typically between $5,000 and $50,000.

So in total, asset tokenization cost starts at $50,000 and the upper range can vary greatly depending on the specific project and requirements.

*It is important to note that these are just estimates and the actual cost of tokenization will vary depending on the specific project and requirements.

Worried that tokenization might be too expensive? No worries! InvestaX's tokenization SaaS solution, complete with full tokenization technology and licensing, can significantly reduce the cost of tokenizing your assets. Contact us for a consultation.

The Three Tokenization Models

The market for tokenization has seen the emergence of three distinct models. Each model may come with different features provided to issuers, so the costs for tokenizing can vary.

Let's shed light on the three popular tokenization pricing models:

• The token issuance only model
• The token exchange only model
• The licensed and comprehensive tokenization software-as-a-service (SaaS) model

1. The token issuance model

The first tokenization model, known as token issuance, involves utilizing a technology-focused company to issue security tokens on behalf of asset owners. While this model provides some value, investment firms often require additional licensed services for the issuance and trading of securities. Therefore, token issuance alone is not sufficient.

2. The security token exchange model

The second model is the security token exchange model, which combines technology and the necessary licenses to facilitate the complete life cycle management of STOs. This model resembles a tokenized version of traditional stock exchanges, with various services and fees. However, many STO exchanges operate on private blockchains, disconnected from the broader ecosystem of digital currencies and innovations from the Decentralized Finance (DeFi) industry. Although this model adds value, it falls short of being the ultimate solution.

Also read: Public blockchain or private blockchain for tokenization?

3. The “Licensed” Tokenization SaaS model

The third model, which we consider to be superior, is the “Licensed” Tokenization SaaS (Software as a Service). This model combines the advantages of both token issuance and security token exchanges while eliminating their drawbacks. It offers customization and control over assets and investors, enabling the utilization of broker-dealer, OTC, and exchange services without requiring additional licenses. From a market solution perspective, this model represents the best of both worlds and serves as the end game.

Our Tokenization SaaS platform provides a comprehensive software-as-a-service solution for the issuance, trading, and custody of security tokens in the private market. We hold a Capital Markets Services and Recognized Market Operator license from the Monetary Authority of Singapore, allowing us to engage in securities dealings and operate an organized market for securities. Our platform offers a range of services, including seamless banking integration, robust user verification through our KYC module, flexible OTC trading options, primary issuance services, advanced blockchain technology, and smart contract deployment. With our infrastructure, you can easily tokenize your assets and leverage the benefits of our platform.

Tokenize your assets on top of our infrastructure

At InvestaX, we offer the leading Singapore Licensed Tokenization Software-as-a-Service (SaaS) platform for Real World Asset Tokens (RWA) and Security Token Offerings (STO). We provide a one stop shop for tokenized assets for global investors, including real estate, private equity, venture, ESG, startup, private credit/debt and more. We also provide IX Swap, the first legal and compliant Automated Market Maker (AMM) for RWA and STO.

Benefits of using our tokenization SaaS platform:

• All-inclusive one-stop-shop solution: Tokenization SaaS platforms offer everything an investment firm needs to get started with tokenization, including issuance, trading, and custody solutions.
• Latest blockchain technologies: Tokenization SaaS platforms use the latest blockchain technologies to ensure the security and integrity of tokenized assets and a choice of blockchains as well.
• Fast integration time: Tokenization SaaS platforms are designed to be easy to integrate and onboard, allowing investment firms to get started immediately.
• Low cost: Tokenization SaaS platforms offer the most cost-effective solution, enabling issuance, trading and custody of your RWA tokens in a legally compliant manner, all in one place.

Are you interested to learn more about how you can build your business on top of our infrastructure and what we can offer you as your tokenization partner? Leave us a message or reach out to us at support@investax.io for a consultation on your tokenization strategy.

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