Tokenization of industrial goods
Due to being capital intensive, the main challenge of the farmland business is mostly financial. This is why companies working in agriculture frequently deal with the means of paying for products that are alternative to direct purchase, providing refinancing for industrial goods.
Due to being capital intensive, the main challenge of the farmland business is mostly financial. This is why companies working in agriculture frequently deal with the means of paying for products that are alternative to direct purchase, providing refinancing for industrial goods. While renting the equipment may be just as expensive and not as effective, it's the other strategy of paying for different services in the agricultural sector the industry is discovering. This article will examine the asset-as-a-service business model as a new method of financing industrial goods, reveal how tokenization can be applied to the given economic approach, and highlight the win-win benefits both the equipment manufacturer and business in question will obtain.
Asset-as-a-service model for farming business
buyers no longer purchase an asset but acquire it from the equipment provider in a "pay-per-use "model. Within AaaS, users are billed for the actual benefit they obtain. Such models are becoming more popular across multiple industries, owing to rising demand from users of assets like machinery and equipment.
The usage data used for the billing is collected with the help of IoT sensors (Internet of Things). Their introduction offers precise consumption data for billing, making this technology work and providing fairer calculations. It offers telemetry data, which is subsequently shared and analyzed through networked systems, calculating real utilization and current asset value. Scaling AaaS models requires automated billing, invoicing, payment, and connection with existing corporate resource planning tools. However, on the funding side, digitalization necessitates more adaptable capital-raising approaches.
Pay-per-use credits ― how does it work?
Pay-per-usage loans model suggests taking a loan with the asset in question as collateral. Within this method, the payment is determined by the intensity of using the asset. At periods of lesser use and hence fewer sales, the finance installment to be paid is lowered to some amount, which conserves liquidity. The financing rate is again made payable in full or excess if capacity utilization rises again. At the same time, depending on how much the asset is used, it wears out, and its value decreases. Of course, the utilization statistics needed to calculate the financing rate must be agreed upon in advance, and its ideally automated transmission to the bank must be secured too.
SPV for refinancing agricultural equipment
Another option for refinancing is a Special Purpose Vehicle. The tractors (or any equipment in question) are moved to the SPV's fixed assets, and the purchase price is refinanced on the capital market, for example, through the issuance of securities.
"Tractor-as-a-token" ― what is the tokenization of industrial assets?
Tokenization is the process of transferring data or assets to the blockchain. Most frequently, it's the securities or ownership rights being tokenized. Still, tokenization is applicable in a variety of other spheres like finance, real estate, natural resources, art, gaming, and many more.
Any asset can be tokenized in two models: security tokens and NFT (Non-Fungible Token).
Suppose you have a capital asset at your disposal that you wish to monetize via the asset-as-a-service model, be it a tractor or another type of heavy equipment. Making a security token suggests creating a Special Purpose Vehicle ― a subsidiary company owning an asset, be it a real estate property, a business, or a specific capital asset (which can also be a tractor). After the SPV issues its securities, they are transferred to the blockchain and are represented in the form of tokens. This is what investors can buy, hold and trade later. A security token is a form most compatible with securities, stocks and bonds, real estate, commodities, and generally the assets meant to be traded.
Non-fungible token, on the other hand, is a kind of token that represents a single one-of-a-kind asset. Due to the specific token coding, it can't be copied or replaced, as the token's structure itself will not allow it (or contain information about such actions). NFTs are first and foremostly used as proof of ownership or uniqueness thanks to this function.
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Tokenization of industrial assets with either security tokens or NFT is a reasonable basis for conducting refinancing for industrial goods. Most suited for the asset-as-a-service means, the model non-fungible token can offer is to tokenize an asset's ownership in this way, thus enabling more straightforward transactions. A customer could buy an NFT, which would stand for the asset's purchase, but the blockchain allows renting it too. You can connect to such tractor-as-a-token having a wallet tied to this NFT; the fees are calculated according to usage time. After the usage is over, NFT can be transferred back to its original protocol.
Digital rent enabled by blockchain is a vital instrument in today's sharing economy. An approach like this doesn't only resolve the biggest speed bump farmers or farming businesses have, which is the enormous land and equipment cost. It also increases asset usage efficiency by reducing carbon emissions and saving money for all the parties involved, which in the end makes a global economy a lot more sustainable.
Why is tokenization better than pay-per-use loans and SPVs?
Within AaaS, possible refinancing methods include pay-per-use credits, Special Purpose Vehicles (SPV), and tokenization.
Tokenization is not a fundamentally new model but rather an improvement on securitization and data-based (pay-per-use) investment loans. The SPV model is improved by making securities more liquid and possible to trade without registering as a public company, thus lowering the cost of capital and allowing this process to be carried out for lower-value assets.
The pay-per-use model is enhanced with sharing aspect introduction, where many organizations can use one asset, which increases assets' use efficiency and reduces financial pressure on individual companies.
Compared to the two models described above, tokenization ensures a more fair billing pattern (thanks to complete automation) when talking about data-based investment loans. SPV model, in turn, necessitates too much legal and bureaucratic hustle for the simple task of renting equipment. A similar procedure is conducted before the security token offering, which is viable in case you want to pay out the debt by selling fractionalized "tractor-as-a-token" for investors. Still, a tokenization method with the usage of the non-fungible token would be the strategy we would recommend for renting out the equipment in question.
Blockchain and asset tokenization opens up new opportunities for the crypto oil and gas industry. At the same time, oil and gas tokenization benefits all market participants. Companies get a chance to attract new investments. It becomes easier for investors to invest in projects of interest since shares and other assets can be tokenized and divided into fractions. Liquidity increases, and investors can exit at any time.
Related: What are carbon credits and how to tokenize them?
The introduction of blockchain and tokenization to the energy sector can completely reform the sphere. This will improve all areas, from oil production to natural gas monetization. If you have a business in the oil and gas industry and are looking for ways to attract new investments and expand your business through tokenization, sign up for a free consultation with our experts.