Phase 2: Defining Issuing Framework

Phase 2 is centered around designing the token’s structure, ensuring that it accurately represents the underlying asset and complies with all regulatory requirements. The first step involves selecting the issuing country for the token. This decision is critical as it determines the regulatory framework governing the token issuance and ensures alignment with securities and financial laws in that jurisdiction.

For added legal protection and operational clarity, many issuers establish a Special Purpose Vehicle (SPV). An SPV is a separate legal entity created to isolate risks and streamline compliance. It acts as the entity responsible for issuing the token, ensuring that the tokenized asset is legally distinct from the issuer’s broader operations. This approach not only limits liability but also makes regulatory compliance more manageable.

Once the jurisdiction and legal structure are defined, the token’s parameters are established. This includes setting the total token supply, allocation, symbol, pricing mechanisms, and other technical attributes. These details are crucial for ensuring the token’s compatibility with blockchain platforms and providing clarity to potential investors. Additionally, the rights associated with the token must be defined. These rights could include voting privileges, profit-sharing, dividend distributions, or claims to the underlying asset in specific scenarios. Clearly articulating these rights fosters investor confidence and transparency.

To ensure the token operates within legal and regulatory boundaries, a compliance roadmap is developed. This plan includes measures for meeting Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements, as well as strategies for addressing cross-border regulatory challenges. The final step in this phase involves preparing and auditing smart contracts. These digital agreements automate the token’s functionality, such as transfers, dividend payouts, or redemption processes, ensuring efficiency and security.

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By the end of Phase 2, the token’s legal, technical, and economic framework is fully defined. The result is a structured token that is ready for issuance, with all necessary compliance measures in place.