Tokenization of farmland: benefits to agricultural sector and investors
Long before stock markets, digital securities, initial public offerings, and tons of paperwork, which in massive consciousness is what defines money and business, there was one and only ultimate means of income and living ― the farm soil. Although it’s been a while since the Neolithic Revolution and a myriad of different sectors emerged throughout history, agriculture is still a vital component of the world’s GDP. Respectively, like any other sector, it has its struggles, passions, beauties, and most importantly, secret trails to increasing profits of each party involved. One of such instruments can be tokenization.
Main struggles of the agricultural sector
The significant challenge farmers often face is a lack of funds for purchasing land or production expenses. To start a farming business from scratch or expand the existing one, you first need to buy land, which is utterly expensive. Suppose the land is available, or the enterprise’s goal is to expand in operational extent but not territory-wise. In that case, a second significant problem may be the start of new operations or developing the existing ones, which often requires expensive equipment, investing in which is often financially challenging as well. There are initiatives on recycling agricultural waste into electricity, which cost millions of dollars. Even though investing in such equipment would surely be cost-effective, gathering an amount of money this big from scratch without taking high-interest loans is nearly a Hercules-level task.
What is tokenization, and how can it help the agricultural sector?
Tokenization refers to a set of procedures for converting all assets, stocks, bonds, and other financial instruments into blockchain tokens. Because the entire scope of activities takes place entirely online, investing in such tokens is much easier regardless of your geographical location. They may also be traded on decentralized securities exchanges, and investors can benefit from decentralized finance protocols to increase their returns.
Farmlands tokenization provides two benefits that considerably enhance the capital raising procedure for agricultural firms.
The first and foremost advantage tokenization brings to farmlands is access to global capital. In a lot of ways, choosing between institutional investors’ financing and business loans is like being between a rock and a hard place: it’s only a matter of time and contract nuances that either prey on the farm’s income or suffocate the management with high-interest rates. On the contrary, tokenization makes investment far more accessible starting from the technological stage: it allows huge, expensive products to be broken down into smaller, cheaper fractions that can be purchased easily online. Typically, firms that use tokenization raise funds from many individual investors. Tokens are also easier to trade than traditional securities, which makes them even more appealing to investors. This is why farmlands tokenization is a viable option since it is not constrained by national borders and allows individuals from all over the world to participate in the investing process.
A streamlined technical flow will grant access to more investors. Farmlands tokenization is advantageous because blockchain tokens are easier to invest in; a tokenized ecosystem allows for funding from anywhere in the world with a minimum investment of $1,000 or even less.
Because you now have access to more inventors, their relative negotiating power is less, which allows you to set your terms rather than keep up with your investors’ demands as a digital farmland owner. Tokenized agricultural assets will also enable giving the investors a lower interest rate or relatively more minor ownership position while still keeping a high demand.
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What makes tokenized farmland assets attractive for investors?
Like real estate or any other property, farmland has always been considered a solid investment. Provided that tokenization resolves an issue of dealing with a high land cost, which is a shared benefit both for an owner and the investor, a business opportunity like this will be extra attractive for the investors worldwide for even a bigger number of reasons.
Investors will enjoy enhanced liquidity tokenized assets possess. In tokenization, liquidity is achieved thanks to the already mentioned idea of fractional ownership, more straightforward transactional process, and automated market-making protocols (AMM). The latter is the system making private securities trading possible within the liquidity pool, serving as a machinery broker-dealer replacement.
Farmlands tokenization compelling cases
At the end of February this year, Stobox conducted a security token offering for Farm Land Assets Inc., an agricultural company raising capital to purchase large blocks of rural farmland in agrarian States.
Farm Land Assets is acquiring premium agricultural land in the United States to harvest and sell valuable specialty crops. Conducting a Security Token Offering would let the company grow by obtaining more agricultural property at low costs and establishing farm operations on some of the world’s most productive farms.
If to speak in particulars, the enterprise’s initial goal was to raise $15 to 30 million to buy prime farmland in the United States, produce viable cash crops, and diversify the regions and crop types in question to reduce risk. Returns to token holders come from agricultural harvest yield and farmland price increases. All of this is possible thanks to tokenization, namely in this case ― thanks to Stobox Digital Securities Dashboard.
If you want to take advantage of this market opportunity, we at Stobox are here to help. We provide a turnkey solution for tokenizing assets and making them available to a broad spectrum of investors. Request a complimentary 30-minute consultation if you’d like to see how it works in practice for your company.