Tokenization FAQ

Find Answers to Your Questions

What is tokenization?

Tokenization is the process of converting something of value into digital tokens that can be transferred on the blockchain while retaining the asset’s original characteristics. For example, real estate tokenization allows investors to directly own fractional units of a property and transfer their property rights via the blockchain. To learn more, read Tokenization of Assets.

How is the issuance of digital asset securities different from traditional securities?

The issuance process for digital asset securities removes many of the intermediaries that traditional assets require. Because of the core features of blockchain, many of the connectivity functions provided by third parties are now unnecessary or can be strengthened by utilizing the technology. Review this Security Issuance Diagram to learn more.

What is a digital asset security?

Initially known as a security token, digital asset security is a digital representation of fractional ownership interests in an underlying asset or company that can be transferred among KYC/AML-approved investors. Digital asset securities must follow prescribed purchase and transfer guidelines and are subject to jurisdictional securities laws and applicable regulations. Find out more about digital asset securities here.

What is the difference between public and permissioned blockchains?

Public blockchains provide access to open-source technology for participants to build and collaborate with the ecosystem; Ethereum is one such blockchain. A permissioned blockchain, such as Symbiont, is a controlled environment that allows tokens to exist in a closed setting where privacy is needed to protect information. Read more about how digital asset securities can be issued using different blockchains.

What is the difference between digital asset securities and crypto assets?

The digital asset ecosystem has expanded to include various types of assets—cryptocurrencies, asset-backed and pass-through tokens—with varying functionalities—store of value, medium of exchange, or pass-through value. Digital asset securities must pass the U.S. Supreme Court’s Howey test to be deemed a security. Watch the Regulation and the Howey Test conference video to learn more about the differences between tokenized securities and tokenized assets.

Which financial sectors are most applicable to the tokenization of securities?

Industries with pricing disparities, limited liquidity, and operational inefficiencies stand to benefit from digital asset securities. The insurance and real estate industries are among the top sectors that we believe are ripe for disruption.

What are the potential advantages of tokenizing securities?

The primary benefits of blockchain technology—such as peer-to-peer transferability, immutability, and traceability—enable digital asset securities to have near real-time settlement, transaction transparency, fractional ownership, and the potential for greater liquidity and lower counterparty risk. For more information on tokenizing securities, watch Finance on the Blockchain: Pioneering the BTF.

What are the institutional roadblocks for digital asset security adoption?

Barriers to entry for traditional institutions include regulatory uncertainty, compliance/legal costs, new risk management and governance processes, and the recruitment of technical talent. Listen to financial incumbents discuss their perspectives and the challenges they face on this conference panel.

How do trading platforms support digital asset securities?

Due to regulatory confines, digital asset securities can trade on alternative trading systems (ATSs), but not yet on exchanges. ATSs such as Oasis Pro, tZERO, Securitize, Symbridge, and INX are pioneering the digital asset security frontier. To learn more, watch this conference panel recording: “ATS Leaders - The Future of Digital Exchange.”

How does regulatory uncertainty affect digital asset securities?

A lack of regulatory oversight can lead to suboptimal outcomes, such as fraudulent ICOs. Appropriate regulation could create clarity, instill confidence in end consumers, lead to widespread adoption among institutions, and spur innovation in the asset class. Learn more about innovation and regulation.

Interested in learning more about digital assets?

Sign up for our weekly newsletter to receive the latest blockchain commentary and analysis written for sophisticated investors - by professional investors.

Blog

Blockchain commentary and analysis written for sophisticated investors - by professional investors
Visit our Blog →

This fund is an interval closed-end fund. 

An investor should carefully consider the investment objectives, risks, charges, and expenses of the Arca U.S. Treasury Fund before investing.  This and other information is available in the Fund’s prospectus, which should be reviewed carefully prior to investing. To obtain a prospectus, please call 1-888-526-1997.

Fund Risks 

You may not have access to the money you invest for an extended period of time. • You may not be able to sell your shares at the time or in the quantity of your choosing regardless of how the Fund performs. • Investors should understand that the Fund's shares are not currently listed on or available for trading through a national securities exchange or any other exchange, and a market for trading on an exchange may never be available to investors. Except for individually negotiated peer-to-peer transactions, there is currently no secondary market for ArCoins, and no such market is expected to develop. • Because you may not be able to sell your shares at the time or in the quantity of your choosing, you may not be able to reduce your exposure to the Fund in a market downturn. • An investment in the Fund may not be suitable for investors who may need the money they invested in a specified timeframe. • The amount of any distributions the Fund may pay is uncertain. There is no assurance that the Fund will maintain a particular level of distributions, nor is there any guarantee that the Fund will make distributions at any particular time. • Due to the emerging nature of blockchain use in securities transactions, the Fund anticipates that (other than monthly repurchase offers as described below) there will initially be limited to no liquidity in ArCoins due to low or no volume in peer-to-peer transactions. Investors should therefore initially expect greater price volatility in the secondary market than would be the case if the shares had greater liquidity. • The Fund will not invest, directly or indirectly, in digital assets, including digital securities. • Although shareholders can engage in peer-to-peer transactions using blockchain technology, the Transfer Agent will maintain the official record of the Fund's shareholders.

Arca Capital Management, LLC dba “Arca Labs” serves as adviser to the Arca U.S. Treasury Fund, distributed by UMB Distribution Services, Member FINRA/SIPC.  Arca and UMB are not affiliated.