Tokenization of credits – Token ERC-721

by Francesco Galati
Apr. 9, 2020
6 minutes

WizKey Define leverages the Ethereum public blockchain to tokenize financial assets.

The process is very intuitive and instrumental to allow users to immediately transform their receivables into tokens that are unique, liquid and transferrable.

The aim of this short piece is to shed light on the process of tokenization, highlighting the technology used as well as the benefits to the end user. 

What is the Process Of Tokenization? 

Tokenization is the process of digitally representing an existing real asset on a distributed ledger (Hileman and Rauchs, 2017) and is one of the prominent use cases of blockchain technology in financial markets. The tokens issued during the process represent existing assets on the blockchain, by linking the characteristics, economic value and rights associated with these assets, creating a link between the on-chain and the off-chain world, where the physical real assets continue to exist. 

Benefits of Tokenization

The process of tokenization has interesting implications for finalcial market operators. The entire process of management and transfer of financial assets is streamlined and disintermediated, generating efficiencies.

Tokenization rely on different tools and processes that generate all the benefits related. First, by using smart contracts the cost of issuing and administering securities can be reduced, streamlining transactions and increasing speed of execution. The element of automation introduced in the process can reduce costs throughout the whole process and the lifetime of securities. Furthermore, the inherent characteristics of the blockchain protect the privacy of users and add safety – given the absence of a single point of failure in the network. This also brings benefits in terms of transparency regarding asset characteristics and provides data integrity and immutability.

Those tokenization features allow WizKey Define to create value-added. WizKey provides a transferable data room: the documentation set is attached to the token, and gets transferred with it. The process of tokenization also ensures automatic auditability, as all characteristics of the asset are linked to the token and during its lifetime, each change of hands and update will be recorded on the blockchain, thus creating an audit trail ensuring a clear record of beneficial ownership with certainty at any point in time.

The process of tokenization could, therefore, be of particular importance for assets that are typically illiquid, such as receivables, commercial credits, debt (our core business), as it could transform them into liquid tokens that could be immediately transferrable, providing a new funding method and greatly stimulating the development of a liquid secondary market.

Last but not least, coupled with the process of notarization, tokenization is another piece of the puzzle that allows WizKey to offer maximum pre-contractual and legal protection to its users, as any step of the process is fully compliant with regulators and all sensitive operations carried out on the platform are recorded on the blockchain.

Tokenization benefits

Tokenizing credits on WizKey Define

The process of tokenization is instrumental to transfer the credits: a user decides to tokenize the founding act of the credit he/she wishes to transfer. It is a fundamental step of the process, as the buyers that will be invited to observe the portfolio will only be able to see credits that have been already tokenized. Generating the token associated with the credit ensures that, once negotiations will proceed, the credit can be transferred almost immediately, after the buyer has provided the proof of payment. In a matter of seconds, the buyer will receive the token and he/she will visualize the related credits in his/her portfolio. Potentially, the buyer could cherry-pick the desired credits and immediately sell the others. 

The process of tokenization is fundamental to improve:

  1. Trading and pricing: the disintermediation leads to a shift away from the current market makers model, at the same time, it creates an audit trail of ownership and characteristics of the underlying asset, improving the pricing;
  2. Liquidity: the process provides improved liquidity for near-illiquid assets and potentially eliminates the illiquidity premium, leading to a higher share of value to be captured by investors, it also provides faster and cheaper securities lending allowing for a faster unwinding of collateral and improved collateral liquidity, leading to a more efficient use of the balance sheet;
  3. Clearing and settlement: the process is streamlined and cheaper, by reducing back office work and the number of resources dedicated. It also reduces the number of intermediaries and as such the overall counterparty risk of the process. The use of blockchain also provides faster data reconciliation.

In order for the tokenization process to yield the maximum benefits, ideally the settlement should also happen on-chain. However, the relative novelty of this tool makes it as such that it is currently used to reinforce the legacy process, demonstrating the potential to leverage the process of tokenization to drastically improve and revolutionize the process of  management and transfer of assets. For the moment, the assets continue to exist off-chain, in the real world, and as such the two processes have to ensure high interoperability. With regard to this point, our decision to use the Ethereum Public blockchain is instrumental to guarantee the highest interoperability and security, while still acting as a third part that is not involved in the process. On this point, it is important to mention that custody of assets does not fall, at any moment, with WizKey. Our strategic choice is to offer the maximum privacy to our users. As such we have no control or view over the assets and the amounts traded on our platform. 

Token ERC-721 

Given our strategic choice to rely on the Ethereum public blockchain, tokens generated on our platform employ the Non-Fungible Token standard ERC-721, an open standard that creates non-fungible (read unique) tokens. In practice, the standard defines a smart contract framework to allow the creation, management and trading of unique tokens. The most successful application of the ERC-721 was in the Cryptokitties game, in which people could purchase and trade pictures of cats, each of them being unique and distinctive. The game eventually sold cards for millions, highlighting the interesting applications of ERC-721 tokens. 

The fungibility of tokens allow the creation of unique tokens, that can refer to both offline and online asset. This solves the fundamental problem of scarcity in the digital era, as it allows the creation of unique assets, that are not replicable. 

Leveraging the technological potential of ERC-721, WizKey Define is able to ensure that once a token is transferred, then all related documents move with it. After a successful transaction, the buyer will receive the token almost immediately and could, potentially, immediately transfer the token to another buyer, boosting liquidity and stimulating the creation of a secondary market. Last but not least, the whole process results in the digitalization of assets, that further contributes to innovate and move away from paper documents, saving costs, time and resources and especially reducing document loss. It is auspicable that in the near future, most companies will take a step to move towards a full digital approach. 

Future plans and Token-1400

A very important point we cannot stress enough is that all technological developments are ongoing, as such, the technological components on which WizKey Define is built will see constant improvement. To this end, several initiatives are promoting the development of new frameworks for the tokenization of securities. We have been following very closely the current developments happening on Ethereum. In particular, the recent proposal to introduce the ERC-1400 standard. It would improve the current framework of non-fungible tokens by providing standard interfaces for issuing / redeeming security tokens, managing their ownership and transfer restrictions and providing transparency to token holders on how different subsets of their token balance behave with respect to transfer restrictions, rights and obligations ( The objective is to accelerate the issuance and management of securities on the Ethereum blockchain by providing standard interface to operate security tokens. The standard is also programmed to enforce specific legal and regulatory requirements applicable in different jurisdictions, allowing for automate compliance of the tokenized assets with pre-defined requirements built in the code (OECD, 2020). The development of ever improved standards is expected to establish asset tokenization as a practice in the near future. The ERC-1440 already reduces the burden of technical due diligence for stakeholders. More standards are expected to be developed with time, improving and streamlining the process.


To sum it up, the use of ERC-721 for tokenization makes possible:

  • To inextricably link assets to qualifying documents
  • To transform illiquid asset in liquid asset
  • To make assets immediately transferrable
  • To digitalize the asset
  • To protect from double-pledging risks in securitization and factoring

As such, users experience benefits in terms of:

  • Liquidity and tradability of assets
  • Auditing and due diligence
  • Valuation of portfolios
  • Price discovery
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