Morgan Creek Blockchain Capital is taking tokenization to the next level. The VC firm is set to convert paper shares of a company into digital token assets. These assets will then be issued to raise capital for the business.
Somewhere Between an IPO and an ICO
ICOs emerged as a fundraising revelation for startups in 2017. Many campaigns raised millions of dollars showing that perhaps VCs were a dying breed. However, government regulations seem to have tempered the craze, at least in some countries around the world. The primary debate hinges around the definition of ICO tokens; securities or utilities?
Preferring to avoid a regulatory headache, Morgan Creek is tokenizing the shares of Anexio, a cloud storage firm based in Raleigh, North Carolina. Anexio plans to issue the tokenized shares with the aim of raising $40 million from the asset sale. Investors in the sale will receive equity in return for their investment. This exchange of equity distinguishes the sale from that of an ICO. In ICO public sales, investors do not receive a share of the company in exchange for their investment. Thus, the tokenized Anexio shares are unarguably securities. Therefore, the sale will be subject to SEC regulations.
Blockchain-based Tokenization is an Upgrade to the Securitization Model
Morgan Creek believes tokenization is the future of the business process. Commenting on the company’s plans, Anthony Pompliano, a partner at the firm said:
Once all assets are tokenized, then we believe the entire financial system will be more efficient and compliant. Morgan Creek is focused on tokenization because that’s where we believe there is less hype and more sustainable value being created.
Tokenization, the process of issuing tokens as substitutes for sensitive data elements, is a concept that predates the emergence of the blockchain. However, many experts believe that the technology behind Bitcoin provides the framework for a more robust tokenization ecosystem. With benefits such as share registers for tracking ownership of tokenized assets and faster equity transactions, many firms are actively pursuing the development of functioning tokenization protocols.
With the uncertainty around ICO regulations, tokenization might hold the key to simplifying the blockchain-based capital raising economy. However, despite the potential benefits of the system, there are a few problems that need to be sorted out – the primary one being that the necessary infrastructure to trade tokenized securities is presently non-existent.