Every year the cost of natural resources is growing. This makes investing in commodity companies very attractive. However, not every investor has the opportunity to invest in such projects for many reasons. However, there are solutions that make investments more affordable, and tokenization is one of them. Stobox, a company that has been tokenizing assets for its clients for four years already, talks about options for tokenizing natural resources in this article.
Natural resource tokenization models
Asset tokenization is a series of technical and legal procedures that allow for transferring ownership of certain assets to the blockchain. Blockchain is an immutable and well-secured decentralized registry that ensures data safety. At the same time, the token exists only in the form of a digital asset, which is very convenient.
There are two main models for the tokenization of natural resources.
Tokenization of the asset itself
First of all, it is worth considering the tokenization of a particular commodity. For example, it could be an ounce of gold or a barrel of oil. In this case, the possibility of fractional ownership of assets is provided. For example, you do not need to spend money on buying a whole bar of gold; you can buy a share in it.
To implement such a model, allocating assets to a special purpose vehicle (SPV) is necessary. Investors will get tokens representing shares in the company, and if the commodity rises in price, investors will get income. Tokens also can be used to set other contractual relationships with the issuing company since this technology is very flexible.
Natural resources on the blockchain: tokenization of oil and gas, gold, copper, etc.
There is also an alternative option – investing directly in a tokenized business that works in the field of natural resources. For example, an oil company. The shares of such companies are expensive, but the threshold for investment can be lowered by dividing them into fractions with tokenization. Availability for investors will ensure a new influx of investment in the industry.
Top 5 benefits of natural resource tokenization
There are many benefits of asset tokenization for businesses. Having extensive experience in the market, Stobox highlights five main advantages below.
- Availability for retail investors
Many companies that operate in the extraction, sale, or procession of natural resources can only receive investment from institutional investors. There were no alternatives for such a scheme to raise capital for a long time. Individual investors could not invest in assets or companies because the threshold for entry could exceed $1,000,000. The vast majority of people simply do not have that amount.
Tokenization opens up new business opportunities in terms of working with private investors. If you divide a share or asset into tokens, each of which will cost, for example, $1,000, there will be many people willing to invest. In this way, a significant amount of capital can be raised.
- Reducing dependence on banks
The second advantage comes from the first. The key sources of financing for the oil and gas industry are banks and other financial institutions. However, there are often problems with attracting investments. Many mineable minerals are located in the developing countries of Latin America and Africa, where there are economic problems and significant risks. Not all banks are ready to allocate funding for projects that are being implemented in these countries. If the bank is ready to do this, as a rule, companies are faced with an increase in interest rates on loans. Financial institutions insure themselves against possible risks this way.
Asset tokenization reduces dependence on banks, bringing private investors to the stage. The commodity mining and processing industry can generate significant returns, so many retail investors will be ready to risk a relatively small amount. The company gets the opportunity to attract more aggressive investors who are prone to risky deals.
- Risk reduction
Yes, tokenization also reduces the risks for companies. This is especially true for the development of promising fields. Not all investors are ready to invest in projects that are, for example, at the mine construction stage. On the other hand, the lack of additional funding can slow down the process of field development for companies.
Asset tokenization reduces such risks. Banks and financial institutions often invest conservatively and are not ready to give money to such projects. Among retail investors, interest in such investments is higher. Many of them are willing to spend a relatively small amount to invest in a promising field.
- Brand image improvement
In the modern world, the use of high technology is a good form. Blockchain is one of the technologies that are of great interest to people worldwide.
The use of blockchain creates the image of a progressive business for the company that is ready to introduce new technologies. This is a big plus in the eyes of investors because if a business uses such solutions to attract financing, it will likely use innovative technologies in the course of its core business. This can greatly increase brand awareness.
- Increasing liquidity
Another significant benefit is the increased liquidity of the assets. It is much easier to trade tokenized securities on the blockchain. This increases the attractiveness of the business in the eyes of investors. They know they can easily sell their stake and make a profit. This is an important aspect that makes investments more convenient and attractive.
Asset tokenization is an innovative solution for attracting investments by companies that work in processing, mining, or selling natural resources. Thanks to tokenization, you can significantly increase the financing of your projects. Tokenization makes investments more accessible and more convenient. In addition, the use of blockchain can be a good image project for any company.