{"id":911,"date":"2022-05-11T07:26:15","date_gmt":"2022-05-11T07:26:15","guid":{"rendered":"https:\/\/digitalbabel.legal\/?p=911"},"modified":"2022-05-11T07:26:22","modified_gmt":"2022-05-11T07:26:22","slug":"tokenisation-an-old-concept-given-new-life","status":"publish","type":"post","link":"https:\/\/digitalbabel.legal\/digitalizacja\/tokenisation-an-old-concept-given-new-life\/","title":{"rendered":"Tokenisation – an old concept given new life"},"content":{"rendered":"\n
\"\"<\/a><\/figure>\n\n\n\n

Tokenisation is one of those terms often heard in the same breath alongside such concepts as web 3.0, metaverse or blockchain. However, tokenisation is not just part of a vague concept, but is already being used in real business projects. Companies such as Taco Bell<\/a>, Adidas<\/a> and Polish Tenczynska Okowita<\/a> are now experimenting with tokens.<\/p>\n\n\n\n

Tokenisation is an expanding concept that is gaining in popularity and requires quite a bit of both technological knowledge and an understanding of how blockchain-based business projects work. In the flurry of information, it is easy to miss the key aspects. Among many articles on the subject, including those written by lawyers, there is surprisingly little information on the legal basis of tokenisation. One might even get the impression that tokens stored in blockchain are not subject to ordinary legal norms, but that some kind of virtual metaverse law applies to them.<\/p>\n\n\n\n

However, tokenisation is really nothing new – it is an old concept that has been given new life thanks to distributed ledger technology (DLT).<\/p>\n\n\n\n

In this article I discuss the legal basis for tokenisation under Polish law.<\/p>\n\n\n\n

What is tokenisation?<\/strong><\/h2>\n\n\n\n

Tokenisation is the creation of a representation of an asset, such as a thing or a right, in the form of a digital record. Such digital record may in particular take the form of a record within a database created using DLT.  Let us first examine some examples of tokenisation which do not use DLT.<\/p>\n\n\n\n

Tokenisation understood in this way is provided under, e.g. Article 8 of the Act on Bonds, which stipulates that a bond exists only in dematerialised form as an entry in a securities depository (maintained by the National Depository for Securities – KDPW). An entry in the KDPW is therefore a kind of token – it is a digital representation of a bond, i.e. a security, in which the issuer states that it is a debtor to the bond owner and undertakes to satisfy a specific performance. Of course, this is not blockchain-based tokenisation.<\/p>\n\n\n\n

A similar view can be taken of the obligation to dematerialise shares in joint-stock companies provided under the provisions of the Commercial Companies Code, according to which shares are not in documentary form and are registered either in an electronic shareholder register or in the securities depository operated by the KDPW. Incidentally, these provisions provide that “The shareholder register should be maintained in electronic form, which may take the form of a distributed and decentralised database”. <\/em>This is therefore another example of tokenisation, which may at the same time be a form of tokenisation using blockchain technology.<\/p>\n\n\n\n

Finally, promissory notes can be seen as a specific token, in this case in the form of a paper document with strictly defined content and form.<\/p>\n\n\n\n

Primary tokenisation<\/strong><\/h2>\n\n\n\n

A characteristic feature of all of the above examples of tokenisation is that the token (e.g. an entry in the KDPW securities depository, an entry in the shareholder register) is inextricably linked to the represented asset. In other words, such a token incorporates the represented asset. Consequently, if we want to dispose of an asset represented by a token (e.g. a bond or a share), we only need to make the appropriate change in the database in which the tokens (entries) have been recorded.<\/p>\n\n\n\n

These are examples of primary tokenisation, i.e. tokenisation that follows directly from the law, giving tokens (entries in the database) the meaning of equivalence with the asset that the token represents.<\/p>\n\n\n\n

If the law provides for such primary tokenisation, the legal borders of tokenisation are obvious. Therefore, it is not possible to record a bond within, for example, blockchain in such a way that the bond is a bond within the meaning of Article 8 of the Act on Bonds. This is because the Act provides that the status of a bond has only a record in one specific database – the one maintained by the KDPW.<\/p>\n\n\n\n

If, therefore, we are dealing with a token within a blockchain, then as long as we are unable to identify legal provisions which form the status of such a token as a digital record incorporating specific assets (in other words, from which the equivalence of the token and the asset it represents is apparent), we are not dealing with primary tokenisation, but with so-called secondary tokenisation.<\/p>\n\n\n\n

Secondary tokenisation<\/strong><\/h2>\n\n\n\n

Secondary tokenisation is based on representing a given asset by a token (i.e. a record within a database) on the basis of a corresponding liability construct. Thus, the status of a token in this case results mainly from the content of obligations that accompany the creation and trading of the token. The content of these obligations usually needs to be reconstructed by analysing the full legal and technological context associated with a given token.<\/p>\n\n\n\n

It is easy to see that, in principle, almost all tokenisation projects are based on secondary tokenisation – the developers of a given project “agree” with token owners that a given token will represent a specific asset – a thing or a right. However, this also means that in most cases the acquisition of a token will not be equivalent to the acquisition of the asset that the token represents. The same is true for trading in tokens – the purchase of a token “representing” a property right to real estate will not allow the acquisition of that property. Typically, however, the purchaser of a token will be able to require the issuer of the token to perform an obligation it has incurred – for example, in the form of a specific performance. The purchaser of the token may also raise claims against the issuer arising, for example, from being misled as to the effect of the token acquisition.<\/p>\n\n\n\n

In a nutshell, the following levels of legal analysis of a token, i.a. can be identified:<\/p>\n\n\n\n