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Luxury units tokenization is an innovative approach that involves converting high-value physical assets such as jewelry, fine wine or watches into digital tokens on blockchain platforms. This process enables fractional ownership, letting investors own a fraction of these assets without the need for large capital investments.
Tokenization opens up investment opportunities in the luxury market to a wider range of individuals, democratizing access to exclusive assets. It also increases liquidity by making it easier to buy, sell and trade these tokenised assets on digital asset exchanges. All in all, the tokenisation of luxury goods represents a significant evolution in asset ownership and investment strategies in the digital age.
Key Numbers about Luxury Units Tokenization
$2.3 trillionestimated size of the market for luxury goods suitable for tokenization |
24/7tokenized luxury asset markets can operate 24/7 globally |
$5-$15 billionestimated market size for STOs in the luxury sector by 2025 |
50%the potential increase in liquidity for luxury assets |
5-10 yearstimeline in which experts believe tokenization of luxury assets could gain significant traction |
15-30%the potential cost reduction in the lifecycle of luxury assets due to the efficiencies introduced through tokenization |
Legal Opinion about Luxury Units Tokenization
Ganna Voievodina
Manimama, CEO
"What I can say is that tokenization of luxury goods offers lucrative opportunities for investors. This allows them to diversify their portfolios and potentially earn a significant return on investment as the value of tokenized luxury goods increases over time. Get in touch with the Manimama team, experts in luxury tokenization, to turn your investment dreams into reality on the global blockchain arena".
Challenges of Traditional Luxuries Ownership
Significant Capital Demands:
- Exclusivity: luxuries are designed to be exceptional and are often premium priced. This exclusivity applies to ownership, where only people with considerable financial resources can afford to purchase these items.
- Concentration of Wealth: concentration of ownership by a small group of high-income individuals can lead to wealth inequality and limit opportunities for greater participation in luxury markets.
Legal restrictions:
- AML and KYC Regulations: fulfilment of AML and KYC regulations is critical when dealing with high-value luxury goods to prevent money laundering, fraud and illegal activity. Rigorous due diligence and documentation may be required to establish the legitimacy of buyers and sellers.
- Regulations on Import and Export: luxuries are often subject to strict import and export regulations, including customs duties, taxes and restrictions on certain items based on their cultural or historical significance. These regulations can affect the value and appropriateness of purchasing or selling luxury goods across borders.
- Taxation: depending on the jurisdiction, taxation of luxury goods can vary, including sales taxes, capital gains taxes, wealth taxes and inheritance taxes. It is important to understand and comply with tax laws to minimize tax liabilities and ensure compliance.
Problems with Liquidity:
- Special Buyers: often luxury buyers are collectors or enthusiasts, further narrowing the pool of potential buyers and slowing down the sales process.
- Instability of Prices: the illiquidity of luxury goods can lead to price fluctuations where sudden changes in market demand or economic conditions can affect the value of the good and its ease of sale.
- Deal Costs: luxury goods sales can entail high transaction costs such as brokerage fees, taxes and assessment costs, which reduce the net proceeds received by the seller.
Maintenance and Care:
- Dedicated Facilities: many luxury goods, such as fine wines, require specialized storage facilities with a controlled environment to preserve their condition and value.
- Maintenance and Restoration: in order to maintain the quality and aesthetics of luxury goods, routine maintenance and periodic restoration work may be required, increasing the total cost of ownership.
- Climate Control: certain luxury goods can be sensitive to fluctuations in temperature, humidity or light, so special climate control is required for storage.
Geographical Constraints:
- Cultural Preferences: depending on cultural and regional factors, consumer preferences for luxury goods can vary, which affects demand patterns and market dynamics. Because of this diversity, it can be difficult for sellers to appeal to a global audience.
- Logistics Challenges: the process of shipping and logistics of luxurious goods can be complicated, especially when dealing with large or sensitive goods that require special handling, packaging and transport. Geographical distances can also influence delivery times and costs.
- Currency Exchange: international trade transactions in luxury goods may be subject to currency risks and fluctuations, which affect the general value and profitability of cross-border sales or purchases.
Expenses for Security and Insurance:
- Security Systems: the installation and maintenance of security systems such as surveillance cameras, alarms, access control and security personnel can be expensive but essential to protecting luxury assets.
- Specialized Policies: luxuries may require special insurance policies developed for their unique characteristics, such as jewelry insurance, which can further drive up insurance costs.
- Risk Minimisation: owners are required to continually assess and mitigate risks to their high-end assets, which may include regular security audits, risk assessments and adherence to security standards and protocols.
Benefits of the Luxury Units Tokenization
Lower Entry Barrier
Through fractional ownership, tokenization lowers the barrier to entry for investors, enabling more people to invest in luxuries without having to purchase it.
Liquidity Boost
Tokenized assets are much more liquid than traditional property as they can be traded on digital asset exchanges, giving investors increased flexibility to buy, sell and exchange ownership stakes.
Transparency and Authenticity
Blockchain technology makes it possible to monitor and verify the history and genuineness of each piece of luxuries, which reduces the potential for fraud and increases customer confidence.
Diversified Portfolios
Investors can broaden their portfolios to include a tokenized luxury assets, which often retain their value regardless of traditional financial markets.
Safe and Efficient Transactions
Blockchain offers secure, fast and economically efficient transactions, reducing the need for intermediaries and lowering the cost of transactions.
Global Accessibility
Tokenization eliminates geographical barriers, allowing investors from around the world to gain access to and invest in luxury assets, thereby expanding market reach and opportunities.
Our Services
As a law firm specialising in serving tokenization projects, we are ready to offer a full range of legal services tailored to the unique needs of this rapidly evolving field, including:
Regulatory compliance
- Support in the complex regulatory landscape of the tokenization and blockchain industry
- Ensuring compliance with local and international legislation, including securities regulations, AML and KYC requirements
Choice of a jurisdiction
- Researching and setting up the optimal corporate structure for tokenization projects with the right legal structure, appropriate taxes and investability
Support of token issuance
- Drafting all necessary documents for token issuance and eliminating risks of token recognition as a security (if applicable)
Business structuring
- Assessment of your structure, doing necessary research, further analysis and helping in empowering your plans
Marketing and advertising
- Preparing marketing plan for your business
- Advertising plan adjustment
- Website creation
Use Cases for Tokenized Luxuries
European Model
The tokenisation business models that we are building cannot reach their full potential if they operate within a single country. Thus, we would like to introduce you to the "Switzerland-Lithuania-Thailand model" that we have created.
Key points:
- Switzerland currently does not have a special license to sell certain types of jewelry, and only AML rules are applicable. Hence, in our model Switzerland is used as an independent trading platform for jewellery or precious metals, i.e. a platform where public offers to buy and sell jewelry are placed.
- For the purpose of cryptoprocessing, every European VASP can be used. The reason for using a separate cryptocurrency processing company is to escape the complex regulation in Switzerland and use a more straightforward jurisdiction to set up a VASP.
- Thailand used to be a physical shop for a jewelry. That is why we were required to keep the country in the model. To confirm the storage agreement, the Thailand company draws up and delivers an NFT to the customer.
- Establishment of companies in Switzerland and Thailand, VASP in Europe.
- Switzerland as Marketplace Operator: developing technical documentation for Swiss marketplace (e.g. website legal documents, NFT Marketplace Rules, all types of legal agreement for ensuring necessary platform`s functionality, KYC questionnaire etc.).
- EU VASP as Crypto Processing Operator: legal support includes at least application for VASP, AML Policies, Agreements with Swiss and Thai companies.
- Thailand store as Seller of jewelry.
Dubai Model
We also developed a "Dubai-Dubai-Thailand model", which is oriented towards the UAE market.
Key points:
- There were two companies in Dubai - the first was used as a trading platform and was required to obtain a license to trade in precious metals, and the second one was a company with a VARA Exchange Services license and was used to provide cryptocurrency processing services.
- As a local regulator, VARA recognises two categories of utility tokens, which are classified into Category 1 (financial), and Category 2 (non-financial). There is no explicit regulation of NFTs. However, NFTs can be allocated to Category 2 of tokens when one of the additional necessary conditions is met (e.g. one transaction exceeds AED 40,000 ($10,890), is offered to more than 150 persons, etc.).
- Establishment of 2 companies in Dubai and 1 in Thailand.
- Dubai as Marketplace Operator: developing technical documentation for Dubai marketplace (e.g. website legal documents, NFT Marketplace Rules, all types of legal agreement for ensuring necessary platform`s functionality, KYC questionnaire etc.).
- Dubai company with VARA license as Crypto Processing Operator: legal support includes at least application for VASP, AML Policies, entering into Agreements with partner companies.
- Thailand store - Seller of jewelry.
Thai Model
Our other business model for NFT-tokenization of a real-world object has been developed as the "Thai model".
Key points:
- Thai Emergency Decree on Digital Asset Businesses, B.E. 2561 (2018) offers a wide distinction of digital assets, which means cryptocurrency and digital token. In turn, digital token can be Utility or Investment one. Regulator - Securities and Exchange Commission (SEC).
- After SEC Public Hearing, it was proposed to create 2 Groups of Utility tokens in the beginning of 2023. If any token is issued as a digital certificate or representation of rights, such as documents confirming ownership rights, then the token is classified as Group 1 Utility tokens, which covers our case.
- Group 1 Utility tokens are exempt from offering requirements, meaning that the issuer can issue Utility Tokens Group 1 without obtaining prior approval from the SEC, and can be NFT.
- In result, for our client's business, it fitted into Group 1 Utility token category, as it aligned with the key rule of not granting additional rights to the owner beyond recording real-world object history.
- Establishment of a company in Thailand.
- Creation of technical documentation, preparation of token structure.
- Selecting an ICO portal that is licensed by the SEC to offer digital tokens.
- Token offering on the ICO portal resource.
Why Work With Manimama?
- Expertise in Blockchain and Digital Asset
- Experience with Tokenization Projects
- Comprehensive Legal Support
- Tailored Legal Strategies
- Regulatory Compliance
- Risk Management and Dispute Resolution
- Industry Connections
- Confidentiality and Trust
If you need legal expertise for your tokenisation project, please do contact our legal team who can help you get your project launched.
Frequently Asked Questions
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What is luxury units tokenization?Luxury units tokenization is the process of turning physical luxury goods into digital tokens on the blockchain. These tokens constitute a digital ownership or right to the luxury item.
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What are the key benefits of luxury units tokenization?Benefits include easier access to luxury investments, enhanced asset liquidity, lower management and transaction costs, and the ability to fractionalize ownership.
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What is the main purpose of luxury units tokenization?The core objective of luxury units tokenization is to make access to investment in these goods more extensive and easy by giving investors the ability to own a piece of luxury assets without having to physically possess the item.
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How is the tokenized luxury units secured?Security is ensured through blockchain technology, which provides non-transparent transactions, anti-counterfeiting protection and digital authentication of assets.
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What types of luxury units can be tokenized?Almost any luxury asset can be tokenized, including jewelry, fine wines, expensive watches, collectibles, etc.
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How can I get access to investing in tokenized luxury assets?You can access investing generally through specialized tokenized asset platforms that offer a variety of luxury assets for investment.
Client Feedbacks
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"Working with Manimama OU has been a pleasant experience for me. I am grateful for their dedication and would recommend them to anyone looking for first class legal representation."
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