Link Token-Issuing and Operating Entities

There must be a strong legal link between the legal entity issuing tokens and the one holding the underlying asset and conducting day-to-day business operations. Otherwise, tokens cannot provide enforceable legal right in relation to the underlying asset.

There are may options for such a link, of the most common ones are as follows.

1. The operating company is owned by the token-issuing entity. This model is the clearest in terms of providing investors with broad rights regarding the underlying asset, and feasible for many forms of tokenization. However, it's not always applied as sometimes it's not aligned with the current ownership structure of the operating company, foreign investment limitations or other factors.

2. The token-issuing company loans money to the operating company. This approach is a good fit for debt tokens, as terms of the token can be duplicated in the loan agreement.

Stobox has also encountered options where the asset is held by a trustee for the benefit of token issuer or even the tokenholders directly, where the issuing entity has an option to buy shares in the operating company, and others. However, they represent less than 5% of the issuances we have observed as both issuers and investors prefer simple structures.