Tokenization of energy business.
Tokenization of energy business.
The energy business is an up-and-coming niche with a bright future. This area is essential for the modern world, and just like many other green initiatives, it draws a lot of entrepreneurs and investors concerned about the environment.
Main struggles of the energy business
The timeline of getting returns in the energy business is often very long. Some companies generate returns or give actual profits only in a very long-term perspective, like ten or more years. The primary reason for that is a need for significant R&D (research and development) investment: it is necessary to develop the technology and improve it to the point where it becomes cost-effective and scalable. For instance, traditional green bonds, which finance transition to sustainable technologies in developing countries, often have a 20-year duration.
Investing in something that will return the profits only 20 years after is not exactly a widespread practice, and such a timeline is a significant problem. Consequently, this narrows the potential investors circle down to exclusively institutional investors with a long-term planning horizon. Additionally, the problem with such investors is that any green initiatives are still too risky in their metrics: their main focus is low-risk ventures.
Related: Tokenization of natural resources: oil & gas, gold, copper, and more
Energy projects are very capital intensive. To start this business, you would need an enormous amount of money to fund the equipment and R&D. It means that a venture like this can't start as a $50,000 startup ― it's rather a couple of millions in question.
What is tokenization?
Tokenization is a scope of processes that transfer all transactions with securities, stocks, bonds, etc., into the form of tokens on the blockchain. It's much easier to invest in such tokens independent of your physical location on the map, as the entire scope of operations takes place fully online. They can also be traded via decentralized securities exchanges, and investors can get additional returns through decentralized finance protocols.
How can tokenization help energy business?
Tokenization of the energy business offers two advantages that significantly improve the capital raising process for companies in this field.
1) Tokenization enables liquidity for investors. Even if the project in question is exceptionally long-term and will only be able to return the investors' money in 15 years, they don't have to wait all this time to get their cash. Tokenization enables investors to sell their stocks and bonds earlier and get the return faster, as putting shares in a token makes trading much more effortless. Moreover, if the tokens are traded, they grow in price while the project is developing. This factor has two significant advantages.First of all, investors can actually witness the tokens' growth, which makes them feel the progress psychologically. They can feel they are actually making money and becoming more prosperous rather than simply waiting for the income to appear.
Secondly, if the tokens are growing in price, the valuation of your company is growing accordingly. Therefore, the subsequent financing rounds will be easier to attract.
Tokenization is a disruptive technology that allows a natural resources business to access a broad circle of investors and provide liquidity for its assets or securities. Get a Free 30-min Consultation.
2) Reach more investors thanks to the simplified technological flow. Tokenization of energy business is also beneficial as tokens on the blockchain are easier to invest in; a tokenized ecosystem allows to attract funding from any point of the globe, with minimum investment as low as $1,000 or even less.
As now you have access to more inventors, their relative bargaining power is lower, which will enable you as a business owner to dictate your terms rather than keep up with your investors' demands. For example, energy tokenization allows offering your investors a lower interest rate or a reduced equity stake.
If you are interested in leveraging this market opportunity, we at Stobox are ready to assist you. We provide a turn-key service for tokenizing assets and offering them to a wide range of investors. If you want to see how it applies to your business in practice, feel free to request a complimentary 30-minute consultation.