Asset Tokenization Protocol: High level architecture

Moresh Kokane
7 min readNov 13, 2019


Estate Baron identified a clear niche in the market in the form of covering the equity funding gap for real estate developments. However EB was never really able to successfully fill the gap. Challenges primarily being around achieving enough investor volume fast enough at a specific point in time.

I have written extensively about this issue on medium previously:

Our objective in doing Konkrete was primarily to reach a wider distribution of investors on the blockchain while also achieving liquidity and programmability.

There are 2 main problems with this:

  1. Securities cannot be truly made non custodial and are not a good fit for representing on the blockchain due to a number of compliance issues (despite our expertise in compliance related matters). Each and every issue while solvable creates too many hurdles and friction to wide adoption.
  2. Just because you are on the blockchain does not mean people will automatically find you. The ICO boom is long over and the approach of “build it and they will come” is a recipe to run out of your runway with nothing to show for.

We resolved the compliance related issues and some of the adoption related matters through the Asset tokenization model and decided to go down the invoice tokenization pathway.

What we have found in the last few months is in the current approach we are taking we are discovering new benefits everyday. The model continues to simplify and bring in greater benefits while allowing us to solve our original funding gap challenge with EB.

Let’s first revisit what kinds of assets can be tokenized.

The only assets that can be and should be tokenized are peer to peer contracts that are not currently regulated centrally.

An invoice issued to a buyer is a great place to start, but in theory a mortgage loan made by a private lender with the real estate as security is also a peer to peer contract that can be tokenized.

The advantage with invoices is the small amount especially in the B2C space we are playing.

However even with the current approach we were trying to build out our own distribution, albeit with a product that is easier to scale than our original model.

So the steps we were taking were

  1. Tokenize the asset
  2. Find an investor to sell the asset to
  3. Ensure investor is repaid (end to end life cycle)

Step 2 still requires building out distribution. While we are able to identify good assets and have built out the process to tokenize it still requires us to find a network of investors.

That part is set to change.

Maker DAI and Compound are DeFI (Decentralized Finance) projects that have already demonstrated the ability to build out a large distribution of investors.

Recently Tinlake and Centrifuge created a connector to use real world assets such as invoices and real estate and use them as collateral on Maker DAI and Compound.

Which means all we now need to do is to tokenize the asset and the rest of the steps of investor distribution and management are taken care of by others.

Let us understand what Asset tokenization means.

Tokenization simply means representing on the blockchain.

An Asset is basically a “claim to something”

Assets that are based on direct ownership of real estate or other kind of physical assets are not suitable for tokenization as they have a central record or are based on possession.

Whoever possesses the gold or cash is the owner of it, so tokenization is meaningless there. And if the asset is centrally recorded then again blockchain is pointless.

However if your contract is with another person then it becomes a potentially tokenizable asset.

Assets that are tokenizable are a “claim against someone”

A contract has the following parameters at a high level

  1. Party A
  2. Party B
  3. Value provided by A to B
  4. Value provided by B to A in return
  5. Date by which the terms need to be fulfilled

For an invoice this becomes

  1. Seller
  2. Buyer
  3. Services or goods sold
  4. Money due
  5. Date money is due by

For a loan it becomes

  1. Lender
  2. Borrower
  3. Money lent
  4. Interest due
  5. Time duration of loan term
  6. Security (optional)

We have already created a process in which 2 parties engaged in such a contract can record this on the blockchain and create a unique set of ERC 20 tokens representing this asset. It may also be represented as an ERC 721, non fungible token.

Above is part of the decentralized process we have already built out to allow any 2 parties to record their invoices on the blockchain by tokenizing it. A very similar series of steps can be applied to real estate or even unsecured lending and our Asset tokenization protocol will allow anyone with P2P contracts to build on top of us to create these Assets. We will also build integrated modules to score the asset around its credibility pr investigate the processes tinlake may already have implemented in this regard.

As you can see in the flow diagram earlier we were planning to sell these tokens representing the Asset (contract) to investors worldwide and build a secondary market.

Konkrete was positioned to be an Asset tokenization and exchange.

But the exchange part included sourcing a large number of initial investors and facilitating a secondary market.

Now that second part may no longer be necessary.

We can simply focus on being the Asset tokenization piece.

Once our assets are tokenized they can be collateralized on tinlake which then feeds in to Maker and Compound to get the necessary funds to the borrower.

As explained earlier we were trying to build every piece of this value chain. Now we simply need to do a specific item. This reduces development timelines and risk as well as allows us to dip into the existing global distribution already achieved by Maker and Compound.

Also it removes regulatory risk, we are simply the asset tokenizers. Why should any one tokenize? Because once it is tokenized it is now represented on the blockchain which means it becomes now possible to borrow against the tokenized asset via Maker and Compound.

We become the onramp of the assets and truly the ASSET TOKENIZATION protocol.

Applications of our protocol include factorium, invoice factoring as well as real estate first mortgage lending for real estate developments.

A developer can approach us and we can connect him with private lenders such as family offices and HNWs. Once the contract is made we can tokenize it as an asset and achieve liquidity for the underwriter which in essence is selling down to retail investors without having to deal with the work of distributing it to retail investors and doing the associated compliance.

A simple way of building up the Assets under management in the DEFI community would be to approach these HNWs, Family offices and SMSF investors and offering them the ability to tokenize their existing assets and tapping the liquidity that comes along with the process. We take a fee for the process.

SMSFs could also leverage this method to buy property in their super by using this borrowing method. These days borrowing against property to hold it in your super has become very hard.

SMSFs can also participate in invoice factoring as well as tokenize any assets they already hold.

For invoice factoring we are already working on a partnership with Modul trade and Open sea which are ebay like market places and use crypto as payment processing. We can take their invoices, tokenize them, collateralize them on tinlake and achieve financing for their merchants via Maker Compound.

One way to build adoption would be to offer early tokenizers foundation tokens on a reducing scale as adoption builds up.

Earlier we had to build every single piece of the puzzle from scratch. Now we only need to build a small connector and the rest of the pieces are already built by other people and have been already proven out.

DEFI is the application which will bring blockchain to the masses and scale and Konkrete Asset tokenization is perfectly placed to take advantage of this coming wave

PS: Since the article was written we have found that we might not need to plug into tinlake and can directly build on top of the Compound protocol. We expect a beta version to roll out mid Feb 2020.