Tokenization 101: Blockchain Basics for New Plural Investors
Ttraditional financing isn’t just difficult. For small and midsized projects, it’s damn near impossible.
Written by
Plural Energy
Whether you’re well-versed in renewables or new to the industry, anyone who’s touched it can agree on one thing: traditional financing isn’t just difficult. For small and midsized projects, it’s damn near impossible.
As with any systemic challenge, impossible-seeming issues require transformative — and even imaginative — solutions. And though it’s particularly difficult to re-imagine traditional finance (who could possibly change that?), the ideal solution has finally emerged: tokenization.
You might think of tokens as the viral, memey, and sometimes uncanny ones you’ve seen on Twitter, like Solana’s recent “Unicorn Fart Dust,” or the ever-controversial Dogecoin.
However, the opportunity presented by tokens goes much further. Dogecoin and Unicorn fart dust show us some of the magic tokenization can unlock, but we believe that security tokens really have what it takes to revolutionize financial systems — and in our case, scale the development of real renewable energy projects.
If you have no idea what we’re talking about, you’ve come to the right place. We know this industry can be confusing, and we want you to understand what you’re investing in!
From tokens to the blockchain to our plan to usher in a new era of finance, here’s an entry-level guide to tokenization.
Plural’s Entry-Level Guide to Tokenization
What is a Token? What is Tokenization?
Tokens are used to represent something digitally. Some tokens represent art (like NFTs, non-fungible tokens), while others represent real-world currencies (like USDC, which correspond to US dollars).
Tokenization is the process of converting a physical or virtual asset into a digital token represented on the blockchain.
What is a Blockchain?
A blockchain is a digital, tamper-proof ledger that transparently records transactions, including a token’s movements.
Like traditional banks and financial tools, blockchains are accessed online. But unlike traditional platforms, every transaction that happens on a blockchain is traceable and viewable by outside parties. No matter what, blockchain transactions can never be erased, hidden, or altered.
Blockchains are also decentralized, meaning they can be created and managed by individuals and groups around the world, and no single company or person can control what’s traced on a blockchain or who is allowed to access it.
Most blockchains, like Ethereum or Solana, are also programmable. This means that the blockchain’s developers can embed ‘smart contracts’ into its code to automate specific actions or transactions.
To really understand the power of tokenization, you must understand how tokens interact with smart contracts. Again, smart contracts can dictate how a token moves based on certain conditions.
For example, imagine you bet your friend that it will rain today. You each put $100 USDC (tokens) into a smart contract that says, “If it rains, then move 200 USDC to you. If not, move 200 USDC to your friend.” The bet will then follow the smart contract’s rules, even if one of you tries to back out!
By combining blockchains and smart contracts, people can enter into trustworthy financial agreements without involving central authorities and financial regulators. In other words, blockchains empower everyday people to make financial moves they previously couldn’t!
What Are the Benefits of Tokenization?
Because blockchains allow multiple third parties to share and verify transactions, tokenization provides clear, secure, and verifiable proof of control or rights over an asset.
Big picture, blockchain tokens unlock a new form of ownership.
Some other key features compound the benefits of token ownership on the blockchain:
Programmability: as discussed above, when a token is created, a person can embed it with rules, conditions, and automated actions. The token will then perform specific behaviors without the need for manual programming later on! For example, a token could automatically transfer royalties to a creator when resold.
Fractionalization: tokens allow an asset to be broken into smaller, fractional units. This means individuals can own smaller portions of high-value assets that may otherwise be out of reach. For example, in real estate, someone can invest in 0.01 of a tokenized property instead of needing to buy the entire property.
Transferability: Ownership of tokenized assets can be easily transferred peer-to-peer or on digital marketplaces without the need for intermediaries, reducing transaction costs and increasing speed. For example, a concert ticket issued as a blockchain token can be transferred to a buyer without incurring platform fees.
All of this culminates in one key feature: trust.
Between the transparency of the blockchain and the programmability of tokens, tokenization ensures that assets always behave according to the rules that the parties agree on.
For example, if a token you purchase is programmed to give you 80% of an asset’s profits and a different person the other 20%, there will be no discrepancies — the money will go where it’s programmed to go, and everyone involved can track it.
We like to view tokens and smart contracts as money LEGOs. Like building blocks, they can connect together to create something even cooler!
Types of Tokens
Many types of tokens have emerged since the dawn of the blockchain, including:
Utility Tokens: Tokens that give access to a product or service, like subscription access.
Non-Fungible Tokens (NFTs): Unique tokens tied to specific assets, like digital art and real estate.
Stablecoins: Tokens pegged to stable assets like government-issued currencies, such as USD stablecoin.
Security Tokens: Tokens that represent ownership of real-world assets that are securities.
Although many splashy tokens have viral appeal (cough cough, unicorn fart dust), at Plural, we focus on the tokens primed to transform the future of finance: security tokens.
What is Different About Security Tokens?
Unlike other types of tokens, security tokens are subject to securities laws (in the US, this means the SEC). This ensures that legal frameworks for ownership and investments of tokens can stand up in the traditional financial world.
Security tokens also offer fast, efficient transactions that feel smoother than traditional stock market transactions — especially when buying, selling, or transferring tokens to other parties.
At Plural, we deliver these benefits and more to investors with tokens that represent real-world ownership in energy transition assets.
Who Can Buy Tokens?
Although some investing opportunities are limited to specific types of investors, in general, anyone with a computer and internet can buy tokens!
Fractional ownership is perhaps the most accessibility-oriented benefit of tokenization. With the right smart contract, the marginal cost of bringing additional investors into a tokenized asset is nearly $0.
So, by making fractionalization easier than ever:
More people can afford to participate in an investing opportunity.
The people behind the investing opportunity have fewer financial and logistical hurdles to jump through.
Of course, everyday investors aren’t the only people jumping on the token train. Fund managers, portfolio managers, environmental investors, and plenty of other financial professionals are exploring how tokenization can streamline their processes and unlock new investing opportunities.
Long-term, this dynamic means that tokens have the potential to bring features like liquidity and accessibility to traditionally private markets. In Plural’s case, we hope to achieve this for clean energy investing first and then eventually for all kinds of asset classes.
Tokenization in Action: How Plural Uses Security Tokens
At Plural, we tokenize clean energy assets. Because we focus on security tokenization, we also:
Operate a FINRA-member broker-dealer and hold a Transfer Agent License.
Maintain records of security ownership using tokens on the blockchain (something other transfer agents don’t offer). So, if a token is transferred from one Plural user to another, the asset ownership transfers with it.
Embed our smart contracts with all the compliance and administrative rules associated with US-regulated securities, as well as all of the business rules and negotiated terms from an investment contract.
Because we’re so careful about aligning our smart contracts with real-world regulations, Plural also reduces the administrative work associated with managing investments for financial professionals like fund managers.
No matter who uses Plural or what baskets of tokens they create, we ensure the terms of the investment can be administered and served at scale — ultimately boosting the appeal and feasibility of investing in clean energy.
In Summary: Why Does Tokenization Matter?
Phew, we know that was a lot. Let’s review the bigger picture:
Tokenization democratizes access to complex financial transactions and investing opportunities previously limited to high-net-worth individuals, institutional investors, and people in specific geographic regions.
For both individuals and businesses, tokenization creates new opportunities for investment and innovation thanks to:
Transparency: Blockchain’s verifiable, secure ledger protects token holders.
Reduced Intermediaries: Without middlemen, processes can be streamlined.
Enhanced Liquidity: Assets can be traded more easily on blockchain-based platforms
Global Reach: Tokens open up markets to people around the world. Financial experts predict that tokenization will one day expand into mainstream industries like healthcare, entertainment, governance, and, in our case, clean energy. After all, tokens solve many pain points created or unaddressed by traditional finance.
Congratulations — you’re now a tokenization expert!
To learn more about Plural’s plan to scale renewable energy through security tokenization, head to our blog page.To learn more about clean energy investing with Plural, click here to browse our offerings and register for our platform.To connect with a member of our team, click here to send us an email.
