Asset Tokenization Framework

Crypto Kitties are typically derided and ridiculed in the crypto press and in the blockchain community. Yet, crypto kitties exemplify a new class of digital and cryptographically secured assets. Crypto kitties exist in code on the Ethereum blockchain and each kitty has individual unique characteristics. They are immutable and valuable and can be traded and exchanged as digital assets.

In the real world, the creation of property rights was the foundation of freedom of contract. Without a definition of property rights, freedom of contract pertaining to assets would be pointless because the assets cannot be defined without any rights attached to them. Property rights can be defined as rights from freely concluded contracts, legal claims from tortious acts, private ownership of land, copyright, among others. Freedom of contract means freedom to contract or not, freedom to choose counterparty, freedom to determine contract content, and the freedom to choose the form of the contract, among others.

The creation of digital property rights over digital assets necessitates a decentralized underwriting function

Standalone Digital Assets

In the case of standalone digital assets, the cryptographic guarantees of the blockchain alone may suffice to create property rights in digital assets. Digital assets as standalone assets can be created simply by using the cryptographic verification / hashing etc. procedures in existing blockchains. Once the asset exists on a blockchain it can be traded and used in commerce. The blockchain ensures that once the assets was created and is transferred, each property right associated with the digital assets is immutably stored and can be fully traced.

Digital Assets with Underlying Real Assets

Digital assets that are connected to existing hard/real assets require additional verification and legal liability guarantees in order to create consumer confidence and legal certainty with the associated effects on distributed commerce. Unlike in the case of a standalone digital asset, where the blockchain ensures that once the assets was created and is transferred and each property right associated with the digital assets is immutably stored and can be fully traced, for digital assets that are associated ot hard assets, the consumer and market confidence in digital assets that are attached to hard assets require legal guarantees that the digital asset encapsulates an existing hard asset with clean title. Consumers will not trade such digital assets and the market will severely discount its price because of the underlying legal and economic uncertainty, unless some entity or person investigates the origin and rights attached to the underlying hard asset and guarantees its origin and existence of clean title, e.g. no rights are attached to the underlying assets other than the rights of the current asset holder.

The Semada Underwriting DAO can certify the existence of a digital asset with an underlying hard asset and create a record of clean title for such assets. By taking on the legal liability that protects an acquirer of such digital asset if the title to the asset should not be clean, the underwriting DAO creates the much needed legal certainty and consumer confidence that are the fundamental preconditions of decentralized commerce.