DLab: Myths and Reality in Tokenization

Distributed Lab is behind Swarm, Shelf, TokenD platform and a dozen of other major blockchain based projects. In tokenization, this Ukraine-based company is a serious, solid international player armed with the innovative concept of Financial Internet. Our Chief Editor talks to Dr Pavel Kravchenko, Distributed Lab founder, about current myths and the reality in tokenized asset management.

Q) Let’s start with a couple of examples to detail your cooperation with an existing business that wants to benefit tokenization. Say, we have an agricultural production, owners want to crowdfund its future produce. Firstly, what information will you expect from the owners?

If we have a customer and they want to crowdfund something, then we expect from them a legal structure that allows them to do it… we expect that they already have some user base that will be willing to buy this asset.

In addition, we want them to be ready for integration with their existing systems. Then we explain to them that tokenization is not a miracle; it’s not a magic pill – it is a process of transformation of their accounting systems.

Many traditional businesses didn’t have any electronic systems to manage their assets and especially doing such features as tokenization. To them, we have to build a system basically from scratch which means that all the roles that they have inside – such as a user, administrator, accountant, auditor, etc – have to be set up and to be programmed in a way that follow their requirements. We don’t deal with people who just want to issue a token on top of Ethereum and sell it to somebody. We want to see a conscious decision to transform business and IT-processes of their business.

Q) How would you price your service? Will be give a real life example (no names needed) how much it costs to tokenize via TokenD?

Since we provide only a technological platform, our prices are not high. We’ve built our platform using our previous experience and we hope that it will benefit a lot of businesses. We don’t run our own platform – we provide others with a technological foundation for building their own system. We currently sell licenses, starting from €1,000 per month, and we also sell superficial licenses.

Obviously, a customer needs to have an ability to customize the platform according to their needs for which they need to have a product owner within the company.

They would probably need to hire external engineers (we can help with finding development partners – we have many), and these engineers will implement their design requirements, external integration with their legacy systems. They will customize mobile applications and web applications.

The total price will be the sum of the costs – legal (might be the highest one) plus the license cost, plus customization costs. However, from our experience, the development costs of the whole project are approximately 4 times less than they have been without the platform for the use cases that are relevant for TokenD.

Q) What will be an optimal way to cooperate? Describe it please as an instruction to follow, in steps.

The optimal way to cooperate would be to have a meeting where we understand whether tokenization is needed for the business. I usually ask a very simple question: “Do you have assets that are tradable?” It means that the business maintains a ledger of some assets that belongs to their customers, and their customers will be happy to trade these assets. The most simple example is a bank which has custody or cash in accounts, and people can send money to each other, while the bank simply changes numbers in its ledger.

Another example would be warehouse receipts which may be tradable, so that users, farmers will benefit from trading these receipts, while they do not actually move but are rather stored in one place, warehouse.

After asking all these questions, for example, whether it makes sense to trade assets, whether they are fungible, divisible…. If all answers are “yes”, then it is really easy to tokenize this asset. It would make sense. Then we have to… assume as we agree on that… we need to find the product owner within the company that will create detailed requirements for a particular system. We have a template for a specification, and it can be filled in, which is not a very hard process, and then we receive a full software specification which is the basis for software developers.

Q) Let’s take another example, not of an existing, but of a new business. Say, I have an idea for a blockchain platform, for example a traditional blockchain marketplace. How can TokenD help here?

It is an interesting expression a “traditional blockchain marketplace”. TokenD is a marketplace solution. You can build variety of use cases: crowdfunding platform, marketplace for private equity, marketplace for intellectual property, or marketplace for real estate, or marketplace for warehouse receipts. It has all the necessary modules like customizable wallet, ledger, payment system, an order book, gateways for crypto and fiat, user management, admin management with permissions and rights, management of limits and fees, and crowdfunding module. Combining all these modules helps you to build your own solution.

Q) Independent reviews of TokenD mention best practices used in its development. How did you accumulate them? Which best practices?

We have been building projects in the past, and we’ve accumulated some experience. I can assure you that building a project and building a product that others can use require a completely different approach.

According to scientists like Grady Booch, it takes approximately 10 times more efforts to build a product which will be integrated into another ecosystem. And we have followed that path… it’s not cheap… and these practices come with, you know, blood and sweat. And most of them are related to security and code reusability. Then, obviously, the feedback from our customers gives us an idea of what can be improved and why. And we keep track of resources that we spend on a particular feature.

Q) What makes TokenD stand out amongst other platforms?

I would say we are almost unique in building a near-ready white label product that can be used to launch your own system. While most competitors… well, they have built solutions for themselves. They launch a platform and then they attract customers to this platform. We follow another approach – we are like WordPress for tokenization. You can take it, you can customise it, and build your own thing. I know very few companies that do the same. Most of them – I would say almost all – attempt to build their own solution for themselves, then the business fails and now they try to sell the codebase. But as I had mentioned before, building a project for yourself and building a product that other people will then use, are completely different tasks. Hence we have a good standpoint because we have always focused on building a solution that other developers can use.

Q) Currently, there are no standards in tokenization. What kind of problems follow and how DLab being a major player contributes to solving them?

There is no standard of tokenization. And I would say the word “tokenization” is sometimes misleading because people think that it’s a process of issuing and selling a token. Most people still think that this is about issuing an ERC20 token. When we talk to customers who approach us to digitize their assets, we have to deal with a number of myths that they believe. The first one is that the system is distributed between everybody, and the second one is that there’s a special token that is not a representation of their asset but some another entity with a new asset class (which is not true obviously). In our definition, we believe that token is a technical term and tokenization is the process of asset management and accounting transformation. We believe that every accounting system in the world will be digitized in a way that it has uniform APIs and these APIs will allow connecting external wallets like browsers, and you as a user will be able to connect to any accounting system using your wallet and keep track of all your assets. We call it Financial Internet. And it makes sense, Internet works like that. Currently accounting systems are not compatible, they don’t have open APIs, even if they do, these APIs don’t support cryptographic methods of protection. So what we do? Our product is a small step towards digitization of all accounting systems in a way that all data is cryptographically protected, and security consensus is used to synchronize data in different accounting systems.