Rihanna, the metaverse and everything: tokenising trading
00:38, 20 December 2021
If you can trade it you can tokenise it. And that is exactly what start-up stock exchange Tokenise intends to do. Rihanna’s next album, e-sports teams, surrealist paintings, wind farms, the London Underground and even the metaverse itself can be tokenised, according to the firm’s CEO Mike Kessler.
Set to go live in the first quarter of 2022, Tokenise has bold ambitions not just on the scope of assets that can be traded but also for the potential of fractional ownership and token-based royalty payments to disrupt established markets.
“We are only at the cusp of the potential for tokenisation. We’re trying to give people exposure to assets they couldn’t previously buy into. Tokenise is trying to democratise finance and we want to do this on a global basis,” says Kessler on a video call with Capital.com from his UK base.
“Tokenisation is particularly relevant in the context of the whole sharing economy. Certainly in the UK, and especially London, people are facing issues getting onto the property ladder.
“But by having exposure to property in a tokenised form they will be able to benefit if the asset class appreciates further in value”.
Tokenising the art world
Kessler says that while property will be a major asset class in the new tokenised world the firm is really interested in applying its approach to art.
He gives the example of a Picasso painting. While there are just a handful of people worldwide who can splash out the $100m plus cost of owning an individual picture by the iconic Spanish artist, there are millions who could be tempted with a $100 slice of one of the surrealist’s works.
Artwork has a twofold appeal, according to the Tokenise CEO.
Stable assets for an unstable world
“There’s two types of potential investors for tokenised art ownership: emotional investors, and financial investors. So the emotional investor might want to say, ‘I own a piece of a Banksy or a Monet’.
“Whereas you’ll also get the financial investors who will see it as an interesting alternative asset class they would like exposure to. So art and property are probably the two biggest things in fractional ownership.”
The interview takes place just ahead of Turkey’s latest interest rate cut and Kessler says tokenised physical asset ownership is also an attractive option for investors in countries with unstable economic conditions and volatile currencies.
“Tokenisation offers financial security and the ability to own a stable asset to investors in countries like Venezuela or Turkey, which are facing rampant inflation and devaluation in their local currencies.”
How does tokenisation work?
The Tokenise platform is regulated by the Barbados Financial Services Commission and Kessler reaches for the Caribbean country’s most famous export, singer Rihanna, to explain how token technology works.
He emphasises that the firm is not in talks with the popstar but says her singing career provides the perfect umbrella to shelter the tokenise concept.
In 2019, Rihanna signed a record deal with Sony but in the future instead of getting an advance from her label she could instead raise the cash from her global fan base using tokenisation.
“So if Rihanna turned around and said, I’m going to, ‘I’d like to tokenise my next album and instead of giving it to Sony I want to be in control of it myself and give it to my fans’, this is entirely possible.”
Rihanna has over 100 million followers on Twitter and millions more across other social media platforms, and Kessler says that she could mobilise this audience to fund the album without recourse to a record label.
Tokenising allows greater engagement
“She would have to issue a prospectus and go through the right channels such as listing requirements and KYC (know your customer) steps, but ultimately she would just need to mobilise 1% or less of her fan base to achieve the same advance her record label could provide.
“This also turns up the fan engagement level exponentially and offer the potential to change the entire entertainment sector’s business model.”
According to Tokenise’s head of operations Paul Traill, the royalty concept can be applied to numerous industries. He cites the example of renewable energy projects which typically have long-term power purchase agreements.
Using tokenisation it is possible for firms to finance the building costs upfront in return for a series of royalty payments to token holders.
Tokens versus shares
“But you can do it with anything, say a firm of solicitors looking to expand overseas. It can offer to share a fixed percentage of its income over a set period to investors,” Traill says.
“Or you could do the same with an Esports team, that sector has a massive potential and can easily be tokenised.”
According to Kessler the fixed nature of tokenised royalty contracts sets them apart from the current model of share ownership, where investors’ dividends are set by the company’s management team.
“My issue with owning shares is you are completely at the mercy of the directors. And if they decide to pay themselves huge bonuses, or simply don’t want to pay a dividend you the shareholder have no control.
Kessler cites the example of Apple, which is currently sitting on a cash pile of roughly $200bn. While the tech firm has been an excellent investment from a capital return perspective, dividends to shareholders have been more modest.
“I’d rather have 1% of Apple’s profits than 1% of the shares, because that way I know every year what I am entitled to. So why do I want to invest in something that is just a capital appreciation?”
How can investors access the token market?
Tokenise is set to go live next year and in order for investors to participate they will have to go through KYC and anti-money laundering checks as well as passing an appropriateness test.
Tokenise will use the UK Financial Conduct Authority’s crowdfunding standard for this requirement.
“We have applied this approach because we want people to understand that there are risks involved and to be cognisant of the fact that they could lose money investing in tokenised assets.”
Once these requirements are met investors will deposit money into a digital wallet which will be held by UK payment provider Clear Bank. Kessler says this will be done on what he terms a “riskless model”, meaning that no leverage or short selling will be allowed on the platform.
A digital gateway
All items on Tokenise will be priced in fiat currency but Traill says that the firm is looking to add a digital asset gateway within six months.
This gateway will enable investors to pay with digital currencies which will then be converted to fiat on the platform.
And the process will work in reverse when investors sell their holdings, the funds can be converted back into digital currencies based on their fiat value at sale.
“We are a fiat only exchange,” says Kessler. “We are happy for people to use digital currencies to access the platform but because of the volatility in their prices we don’t want to accept it directly”.
Tokenising the metaverse?
The stock exchange may have a preference for traditional currencies but it is looking to tokenise emerging asset classes including the metaverse itself.
Kessler says the firm is in discussions with a firm looking to tokenise an individual metaverse and that it will soon be possible to launch real estate investment trusts (REITs) linked to online properties.
“There could be people that want to get involved in a fund that owns chunks of real estate across the metaverse or various metaverses.”
Monetising the metaverse is not a new idea. In the early noughties developer Linden Lab launched the Second Life metaverse, which reputedly saw virtual real estate brokers develop brokerages worth $250,000.
The metaverse goes mainstream
But with tech titan Meta, the rebranded Facebook, entering the fray the concept is ready to go mainstream.
“Now that Facebook is moving into the metaverse everyone’s talking about how to integrate the digital world with the real world.”
Kessler says the firm is also in discussion with football clubs looking to tokenise their pitches and local authorities are taking a similar approach to their stock of real estate assets, such as leisure centres or residential properties.
“We even spoke to Transport for London, about tokenising the London Underground, which they really liked.”
Private ownership of community assets such as leisure centres and residential housing stocks clearly comes with political implications, but Traill says that an important advantage of fractionalisation is it allows entities to retain ownership of the underlying assets.
“It is possible to part tokenise a building, so you instead of owning a 100% of a leisure centre or an office building you can sell off 49% and still retain control. This is particularly important for the art world, a lot of art owners would like to keep ownership of an artwork while raising liquidity from it.
“What tokenisation allows is for what essentially is a structured product to be brought to a tradable front end, but based on a broader range of assets than is currently available,” says Traill.
With all these options available, where is Tokenise going to start? Kessler says while he would love to kick-start the market with a headline grabbing deal linked to a major artwork; the first asset is likely to be more prosaic.
“First of all, we need to get proof of concept and iron out any glitches. We need to show that the system works.
“We need to test the robustness of it for investors and regulators. So the first few things we are working on are interesting but perhaps lack the mass appeal of say, tokenising a Constable painting,” Kessler adds.
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