US fintech Look Lateral’s successful blockchain tokenization of an artwork via LL DEXX spurs asset tokenization and fractionalization concerns.
Look Lateral, a US-based firm that specializes in fintech, alternative assets, and technical innovation, has announced the sale of a tokenized work of art on the blockchain through its Swiss subsidiary LL DEXX.
The work in question was divided into 100,000 digital tokens, and the sale was completely sold out in less than a week.
This starts a discussion regarding the tokenization of actual assets as well as the future of fractionalizing digital assets. What distinguishes these items from security tokens?
Launch of the first piece of art using blockchain technology by Look Lateral
The transaction was completed using Alighiero Boetti’s 1973–1974 “Order and Disorder” painting.
Michele Casamonti, a Florentine collector and gallerist, sold the piece using a unique method: 100,000 digital tokens, each representing a portion of the work’s ownership, were created and sold through the dexx.finance platform, a blockchain-based exchange that managed the token exchange.
The token sales earned the Florentine gallery owner 135,000 euros.
Look Lateral wants to capture the vast money supply migrating to the tokenizable asset market at this turning point.
Blockchain-tokenized assets will account for 10% of global GDP by 2030, 26 times higher than now, according to the Boston Consulting Group.
Security tokens and blockchain technology are regulated in Switzerland, thus Look Lateral launched this innovative business there.
The company aims to add investment fund shares, equities, bonds, and other financial assets to its portfolio.
Given the uncertainties surrounding US regulation on such products and the fact that financial market regulators worldwide struggle to separate utility tokens from security tokens, Look Lateral’s strategy will be intriguing.
Security tokens versus utility tokens
What distinguishes utility tokens from security tokens most significantly?
Two distinctly different types of digital tokens can be distinguished by this fundamental distinction.
When we talk about utility tokens, we’re referring to digital assets that are useful within a crypto ecosystem and provide access to the company issuing them’s services or goods. This class of tokens is not yet clearly regulated, although generally speaking they are not viewed as investments.
All centralized exchange tokens, like Binance Coin (BNB) and the Kucoin token, are examples of utility tokens (KCS).
Security tokens grant rights to future earnings or value increases of the issuing firm, so they require extra attention.
They symbolize the company’s value because the token’s market price rises with its value.
These assets are more difficult to issue than utility tokens since they require financial supervisory and regulatory permission.
The US “Supreme Court” adopted the “Howey Test” in 1933 to determine whether a transaction is an investment or a security.
This criteria is unsuitable for “security vs. utility” classification because it was devised more than 75 years before Bitcoin’s whitepaper.
Any transaction that expects a profit is an investment (security token).
Three things can be distilled from it:
- investment of money
- presence of a joint venture to “deliver” the money to
- expectation of generating profit
Except for Bitcoin, all cryptocurrencies are regarded as security tokens by the SEC
Gary Gensler, chairman of the US Securities and Exchange Commission (SEC), considers all cryptocurrencies securities. He made this statement in an interview.
According to Gensler, the SEC is in charge of all cryptocurrency transactions, with the exception of those involving Bitcoin.
He claims that a group of people promotes each cryptocurrency by making financial promises.
However, as there is no team in control of the Bitcoin protocol offering returns to investors, Bitcoin is more of a commodity than a financial instrument.
“Satoshi Nakamoto” and the decentralized full node and block mining operators are the only persons behind Bitcoin.
The SEC chief considers Ethereum a security token since it was formed in 2014 as part of a “Initial Coin Offering” (ICO), a fundraising effort in which investors expected their investment to rise in value.
It’s intriguing to consider Ethereum’s initial token sale price of $0.311.
Given the current price of $1874, this yields a 6,041-fold return on investment.