From token to right

Suppose you own a chalet above Megève and want to tokenise it. You create one hundred thousand tokens on Ethereum, offer them to investors, and each buys a share. A year later, one of them knocks on your door with his tokens and demands a room for the season. Under French law, he owns nothing in the chalet. Ownership of a building is transferred by a notarised deed, drawn up by a notary and published at the land registry. No token, however elegant its code, can take its place. Your investor holds an entry in a computer program, and perhaps a claim against you, depending on what you promised him. He is far from holding a share of a chalet.

This little fable says everything about what is at stake. A token always represents a right that exists elsewhere, in company law, contract law, financial law or property law. The entire value of an RWA depends on the quality of that link. Lawyers speak of the legal link between the token and the underlying asset, and every serious project is built around it.

The chain of attachment

Between the asset and the token there is always a chain of links, longer or shorter depending on the structure. It starts with the asset itself, a building, a receivable, a gold bar, a Treasury bill. Then its legal owner, often a company or a fund created for the purpose. Then the right that this entity grants investors, a share, a bond, a fund unit, a certificate. Then the register in which that right is recorded. And finally the token, which either coincides with the entry in that register or reflects it.