In the rapidly advancing world of FINTECH, an innovative approach is taking shape that promises to redefine the financing mechanisms for mining companies. This approach intertwines blockchain technology with tangible assets, such as metals, minerals, and fuels. By incorporating these tangible assets into their business models and assigning them digital ownership, companies can position themselves for the Web 3.0 era. This groundbreaking process, termed “tokenization,” has the potential not only to revolutionize the funding methods for mining endeavors but also to provide a more secure and transparent investment channel for both enterprises and investors.
Tokenization is already being seen in real estate, art and collectibles, sports and entertainment, venture capital, intellectual property, gaming, etc.
At Core State Holdings, Corp./PTPWallet, we believe that the opportunity with mining entities is far larger than in most industries and on par with residential & commercial real estate – as the entity owns physical assets.
The Promise of Tokenization
Recent financial landscapes have presented mining companies with daunting challenges. Traditional funding avenues for mining endeavors are dwindling, pressing these corporations to brainstorm innovative, liquid solutions. Amidst this quest for alternative financing, tokenization emerges as a beacon, promising not just creativity but also flexibility.
Tokenization is grounded in the principles of blockchain technology, a revolutionary digital ledger system that disseminates information across a vast decentralized network. With the creation of a Smart Contract based on a protocol of one’s choice, tokens are created that encapsulate the inherent value of tangible assets, like mineral reserves or ore deposits.
What sets tokenized financing apart is its inherent transparency and security, in most cases no prospectus or Series A, quick setup and launch, and the value of the tokens are tied to the performance of a commodity/mineral on the financial markets. This can make it an attractive alternative to traditional investment methods, targeting a new generation of tech-savvy investors who are looking for an alternate hedge against inflation and economic decline.
Diverse Token Offering Structures
Over the years, several types of token generation events have emerged, each catering to distinct needs and regulatory environments:
Initial Coin Offerings (ICO): Pioneers in the realm of tokenized fundraising, ICOs are typically launched by project initiators themselves. If you recall 2017, there were over 1,000 ICOs being held every month worldwide until mid-2018. ICOs offer groups of consumers and investors the opportunity to buy tokens before they hit the wider market. Though ICOs remain popular, fewer companies are choosing this route because the SEC often classifies many ICOs as securities. This is primarily because initiators frequently sell their tokens at a discounted rate.
Initial Exchange Offerings (IEO): As a response to some of the challenges of ICOs, IEOs emerged as a safer alternative. In this model, tokens are sold directly on a cryptocurrency exchange platform, which often vets the project and ensures certain standards are met. This pre-screening process offers added assurance to investors and allows projects to tap into the exchange’s existing user base. From 2018 to 2022, IEOs were very popular, IEOs gained significant popularity, but this came with a high listing price, sometimes reaching hundreds of thousands of dollars.
Security Token Offerings (STO): This is the most regulated direction. STOs bridge the divide between traditional securities and the digital world. These tokens often represent an underlying asset, like shares in a company, and adhere to strict securities regulations. This brings about a level of compliance, safety, and credibility often desired by more traditional and institutional investors. STOs typically raise anywhere from $15,000,000 to $200,000,000, but require substantially more time to launch due to the regulatory hurdles involved.
Token Generation Event (TGE): This approach bears similarities to an ICO, but the primary distinction lies in its tokenomics design. The focus here is on utility, sustainability, and heightened revenue generation potential.
While it might seem that tokenization is best suited for straightforward projects, its versatility is evident even in the mining sector. Increasingly, mining companies specializing in commodities like gold, silver, copper, platinum, and lithium are conducting crowdsales with commodity-backed tokens. These sales generate revenue, enabling them to invest in new equipment and land.
Steps to Tokenize a Mining Project
Tokenizing a mining project involves several key steps:
Feasibility Study: The company specializing in tokenization evaluates the mining project’s viability. This assessment takes into account legal, tax, commercial, and often environmental aspects to ensure a sustainable and compliant project. Additionally, the value of the land, output expectations for the next several years is taken into consideration.
Token Creation: The tangible assets or value of the project are represented as digital tokens, enabling wider accessibility to potential investors and everyday consumers.
Blockchain Deployment: The tokens are launched on a secure blockchain platform that ensures data immutability and high-level encryption.
Smart Contracts: Every tokenized asset or project is underpinned by a smart contract. This digital agreement specifies the rights, obligations, and conditions pertaining to both the issuer and buyer, facilitating automated and trustless transactions.
Token Crowdsale: Once launched and implemented into a sale mechanism, these tokens are then sold to the general market and are purchasable through the blockchain platform. The price of these tokens are tied to the spot price of the commodity on the foreign exchange market, appreciating and depreciating based on the performance of the commodity on the independent market.
Access to Capital: During the Token Generation Event, the seller is able to access their received crypto and immediately use the sales revenue to acquire new mining equipment, purchase land, pay staff, or invest into other projects.
Ongoing Management: Using the blockchain’s capabilities, ongoing distributions such as dividends or rewards based on project performance can be automatically handled as specified in the Smart Contract or tokenomics.
We’re the main North American-based software development company that specializes in helping mining entities tokenize their business model. Let’s continue on with the advantages of mining tokenization…
Advantages of Mining Tokenization
The integration of tokenization into the mining sector offers a list of benefits:
Increase in Revenue: Integrating blockchain technology into your business model will lead to the opening of a new revenue stream. More importantly, this revenue stream will be both passive and active, all depending on how you structure your marketing goals and what your objectives are with the tokenization. There are businesses who want a quick capital raise, and there are businesses who want to receive stable monthly revenue – the model is flexible.
Digital Asset: With the creation of a Smart Contract, you put to life a digitalized asset. If need be, the ownership of this asset can then be sold to an interested company or individual. If the market cap of the token is $100,000,000, with a liquid market, then you can be confident that your company value has substantially increased.
Inflation Hedge: With the continued decline in economic activity seen globally, tokenized commodities provide an excellent opportunity for large investors – and the general public – to protect themselves against the economic uncertainties.
Market Democratization: Fragmenting the project into tokens widens its reach, attracting smaller buyers and reducing dependence on larger investor groups.
Reduced Costs: Tokenization eliminates intermediaries like brokers, resulting in reduced operational costs. Additionally, it is extremely affordable to do.
As the tides of financial climates shift, mining enterprises are actively seeking innovative avenues. Tokenization emerges as a beacon in these evolving times. By bridging blockchain technology with tangible mining assets, this avant-garde methodology presents a secure, transparent, and economically efficient mechanism for underwriting mining endeavors.
Regardless of the scale – be it a fledgling mining endeavor or a sprawling mining conglomerate – the incontestable benefits of tokenization stand prominent, heralding a revolutionary chapter in mining finance.
If you’re a mining entity looking to incorporate tokenization into your business model, reach out to our team. We’ll be more than happy to assist you as we’re specialists in this field, with a long track record of working with mining entities.
