Tokenization of industrial goods: “Tractor-As-A-Token”
Data-driven “Asset as a Service” business models are increasingly found in the manufacturing industry and are starting to disrupt the financial value chain. What role will the tokenization of industrial goods play in the future?
The tokenization of industrial goods such as tractors opens up new possibilities.
Flexible usage and billing models are a key trend in digitization. Therefore, it is not surprising that they are also becoming more and more important in the manufacturing industry. More and more companies are no longer purchasing capital goods, instead opting for their use as part of pay-as-you-go or subscription models. This is made possible by the use of IoT sensors which provide accurate usage data for billing.
Manufacturers of capital goods can tap new sources of revenue and new customer segments, among other things, by developing corresponding “asset-as-a-service” offerings. However, these profit-based business models imply that a portion of the capital goods produced are no longer sold and remain on manufacturers’ balance sheets. This extension of the balance sheet leads to equity needs which must be covered by equity or borrowed capital.
Asset-as-a-service business models drive capital requirements
Austrian tractor manufacturer Lindner recognized the opportunities of such a benefit- or data-based business model and, in addition to its sales offering, has built up a rental fleet of over 70 vehicles for its customers. Telemetry units installed in vehicles collect a wide variety of usage data and send it to Cash on Ledger.
The Cologne-based startup has developed a fully automated asset lifecycle management system that allows invoicing, payment and accounting to operate completely autonomously without human intervention. The resulting data flows form the basis for cash flow and yield considerations as well as the corresponding risk assessments and residual value calculations for each vehicle. At the same time, this data can form the basis for the necessary refinancing, both through debt and equity.
Refinancing via pay-as-you-go credits
Based on the continuously collected usage data, refinancing can be done through a data-driven investment loan, also known as pay-as-you-go. The repayment amount of such a loan is determined in a flexible way by the use of capital goods: during periods of lower use and therefore lower sales, the financing tranche to be paid is reduced by a certain measure, thus preserving liquidity. If the capacity utilization rate increases again, the financing rate is again made payable in full or in excess. The usage data needed to calculate the funding rate must be agreed in advance and their transmission – ideally automated – to the bank must be ensured.
Refinancing via securitization vehicles (“SPV”)
Instead of taking out bank loans, a new asset class can also be formed based on the usage data, which can then be used for refinancing.
On the one hand, refinancing could be done through SPV structures. Capital goods, ie tractors, are transferred to the fixed assets of the SPV, and the purchase price is refinanced in the capital market, for example by issuing securities. The disadvantages of SPV structures are the enormous amount of labor involved, the complicated construction and the associated costs. They are therefore only economically viable when the capital needs are high and a long period of investment. This structure is generally intended for large institutional investors. For private investors, these constructions are generally difficult to access, among other things, due to the minimum investment amounts.
Refinancing by tokenization of industrial assets
Tokenization can be an alternative to securitization, if applicable. According to the German Federal Financial Supervisory Authority, this is “the digital representation of a value (asset), including the rights and obligations contained in that value, as well as its portability made possible by it. “.
In this case, the assets of the single-purpose company would be digitally mapped as tokens on the blockchain, with each token representing one share of the company and a right to a portion of the cash flows of the underlying assets. The tokens can be transferred to another party at any time, digitally and without intermediaries, and the transaction history and resulting ownership are immutably stored on the blockchain. Distributions to shareholders can be automated using smart contracts.
An advantage of tokenization is that the amount of the investment can be as small as desired. This removal of minimum investment requirements means that different and new categories of investors, such as private investors, can be addressed. In addition, symbolic investments are not necessarily associated with a long holding period due to their simple negotiability, allowing more flexibility and better diversification.
However, a very fractional investment could also be associated with an increased sales effort, as a much larger number of individual investors must be approached and convinced of the profitability of the investment, as well as obviously educated in the case of private investors. . And while the settlement and distribution infrastructures, as well as the regulatory framework, are already in place for established financing instruments such as asset-backed securities, the establishment of an ecosystem in terms of processes, structures and standards for tokenization is still in its infancy.
Usage data enables new forms of industrial asset refinancing
Companies and banks will soon be able to develop new financing approaches and new data-driven business models through the tokenization of industrial goods. At the same time, new asset classes and therefore opportunities for portfolio diversification are opening up to a wider circle of investors.
However, some prerequisites still need to be met before the benefits associated with tokenization can be realized. These include, for example, the establishment of a blockchain-based settlement infrastructure, the creation of appropriate regulatory frameworks, and the development of a comprehensive understanding of tokenization and its opportunities and risks among all parties. stakeholders. In contrast, pay-as-you-go loans, as well as issuance of asset-backed securities, data-driven refinancing options are already out of the box today.
Serkan katilmis, co-founder and CEO of CashOnLedger. Teacher. Dr Philipp Sandner, director of the Frankfurt School Blockchain Center (FSBC). Maximilian Forster, co-founder of CashOnLedger and member of numerous boards of directors and associations. Lukas schmidt, SVP Strategy & Business Development of CashOnLedger with more than 8 years of experience in the banking industry. Katharina schott, Managing Consultant at the interface between IT and business, DLT Talent at the Frankfurt School Blockchain Center.