Finance infrastructure through blockchain-based tokenization

doi:10.1007/s42524-020-0140-2

Front. Eng

2020, Vol. 7

Issue (4) : 485-499 https://doi.org/10.1007/s42524-020-0140-2

RESEARCH ARTICLE

Finance infrastructure through blockchain-based tokenization

Yifeng TIAN¹(

), Zheng LU², Peter ADRIAENS³, R. Edward MINCHIN¹, Alastair CAITHNESS⁴, Junghoon WOO¹

¹. School of Construction Management, University of Florida, Gainesville, FL 32603, USA
². Center for Buildings, Infrastructure, and Public Space, Columbia University, New York, NY 10025, USA
³. Center for Smart Infrastructure Finance, Department of Civil and Environmental Engineering, University of Michigan, Ann Arbor, MI 48109, USA
⁴. Ziyen Inc., Cheyenne, WY 82001, USA

Download: PDF(497 KB) HTML
Export: BibTeX | EndNote | Reference Manager | ProCite | RefWorks

Abstract

The infrastructure finance gap has long-standing implications for economic and social development. Owing to low efficiency, high transaction costs, and long transaction time, conventional infrastructure financing instruments are considered to be major contributors to the increasing mismatch between the need for infrastructure development and available financing. Implemented through smart contracts, blockchain tokenization has shown characteristics that are poised to change the capital stack of infrastructure investment. This study analyzed the first SEC-compliant energy asset security token, ZiyenCoin, from the perspective of the key participants, relevant regulations, and token offering procedures. Results show that tokenization can improve infrastructure assets liquidity, transaction efficiency, and transparency across intermediaries. Conventional infrastructure financing instruments were compared with blockchain tokenization by reviewing the literature on infrastructure finance. The benefits and barriers of tokenizing infrastructure assets were thoroughly discussed to devise ways of improving infrastructure financing. The study also found that the potential of tokenization has not yet been fully realized because of the limited technical infrastructures, regulation uncertainties, volatilities in the token market, and absence of the public sector. This study contributes to the present understanding of how blockchain technology can be implemented in infrastructure finance and the role of tokenization in the structure of public–private partnership and project finance.

Keywords infrastructure asset blockchain tokenization security token offering smart contract public–private partnership project finance

Corresponding Author(s): Yifeng TIAN

Just Accepted Date: 25 September 2020 Online First Date: 23 October 2020 Issue Date: 02 November 2020

Cite this article:

Yifeng TIAN,Zheng LU,Peter ADRIAENS, et al. Finance infrastructure through blockchain-based tokenization[J]. Front. Eng, 2020, 7(4): 485-499.

URL:

https://academic.hep.com.cn/fem/EN/10.1007/s42524-020-0140-2
https://academic.hep.com.cn/fem/EN/Y2020/V7/I4/485

Fig.1 Hierarchical distribution of infrastructure asset ownership (based on Walter (2016)).

Tab.1 Taxonomy of infrastructure financing instruments and vehicles (Croce et al., 2015)

Fig.2 Infrastructure asset tokenization process.

Tab.2 Comparison between conventional financing instruments and infrastructure asset tokenization

Fig.3 Tokenization process of ZiyenCoin.

1	S Adhami, G Giudici, S Martinazzi (2018). Why do businesses go crypto? An empirical analysis of initial coin offerings. Journal of Economics and Business, 100: 64–75 https://doi.org/10.1016/j.jeconbus.2018.04.001
2	Cad Amin (2018). Market share of Ethereum-based tokens grows to 91%.
3	M J Anson, D R Chambers, K H Black, H Kazemi (2012). CAIA Level I: An Introduction to Core Topics in Alternative Investments. Hoboken: John Wiley & Sons
4	ASCE (2017). A comprehensive assessment of America’s infrastructure. 2017 Infrastructure Report Card. American Society of Civil Engineers (ASCE)
5	BANKEX (2018). Tokenization explained: Part 1.
6	A Baydakova (2018). Binance partners with malta to launch security token trading platform.
7	F Blanc-Brude (2013). Towards efficient benchmarks of infrastructure equity investments. Investment Magazine, 91: 42–43
8	A Bogner, M Chanson, A Meeuw (2016). A decentralized sharing app running a smart contract on the Ethereum blockchain. In: Proceedings of the 6th International Conference on the Internet of Things. Stuttgart: Association for Computing Machinery, 177–178
9	W Brammertz, A Mendelowitz (2018). From digital currencies to digital finance: The case for a smart financial contract standard. Journal of Risk Finance, 19(1): 76–92 https://doi.org/10.1108/JRF-02-2017-0025
10	D Bullmann, J Klemm, A Pinna (2019). In search for stability in crypto-assets: Are stablecoins the solution? ECB Occasional Paper No. 230
11	R Burguet, Y K Che (2004). Competitive procurement with corruption. Rand Journal of Economics, 35(1): 50–68 https://doi.org/10.2307/1593729
12	C Burniske, A White (2017). Bitcoin: Ringing the bell for a new asset class.
13	V Buterin (2013). A next-generation smart contract and decentralized application platform. Ethereum Whitepaper
14	Y Chen (2018). Blockchain tokens and the potential democratization of entrepreneurship and innovation. Business Horizons, 61(4): 567–575 https://doi.org/10.1016/j.bushor.2018.03.006
15	I H Y Chiu (2018). Decoupling tokens from trading: Reaching beyond investment regulation for regulatory policy in initial coin offerings. International Business Law Journal, (3): 265–297
16	U W Chohan (2019). Initial Coin Offerings (ICOs): Risks, regulation, and accountability. In: Goutte S, Guesmi K, Saadi S, eds. Cryptofinance and Mechanisms of Exchange. Springer, 165–177
17	C D Clack, V A Bakshi, L Braine (2016). Smart contract templates: Foundations, design landscape and research directions. Computers and Society, Computer Science, Cornell University, arXiv: 1608.00771
18	G L Clark (2017). Financial intermediation, infrastructure investment and regional growth. Area Development and Policy, 2(3): 217–236 https://doi.org/10.1080/23792949.2017.1345641
19	J P Conley (2017). Blockchain and the economics of crypto-tokens and initial coin offerings. Vanderbilt University Department of Economics Working Papers, VUECON-17–00008
20	P Constantinides, O Henfridsson, G G Parker (2018). Introduction–Platforms and infrastructures in the digital age. Information Systems Research, 29(2): 381–400 https://doi.org/10.1287/isre.2018.0794
21	R D Croce, J Paula, A Laboul (2015). Infrastructure financing instruments and incentives.
22	M Crosby, Nachiappan, P Pattanayak, S Verma, V Kalyanaraman (2016). Blockchain technology: Beyond bitcoin. Applied Innovation Review, 2: 6–19
23	C Cui, J Wang, Y Liu, V Coffey (2019). Relationships among value-for-money drivers of public–private partnership infrastructure projects. Journal of Infrastructure Systems, 25(2): 04019007 https://doi.org/10.1061/(ASCE)IS.1943-555X.0000479
24	A Curry, T Hodgson, R Kelnar, A Wilson (2006). Intelligent infrastructure futures. The scenarios—towards 2055. London: Foresight Programme of the Office of Science and Technology
25	A Dakshinamoorthy (2019). 10 ways security token offerings improve the traditional securitization process.
26	R Della Croce, S Gatti (2014). Financing infrastructure—International trends. OECD Journal: Financial Market Trends, 2014/1: 123–138
27	R Della Croce, J Yermo (2013). Institutional investors and infrastructure financing. OECD Working Papers on Finance, Insurance and Private Pensions, No. 36. Paris: OECD Publishing
28	K Delmolino, M Arnett, A Kosba, A Miller, E Shi (2016). Step by step towards creating a safe smart contract: Lessons and insights from a cryptocurrency lab. In: International Conference on Financial Cryptography and Data Security. Christ Church: Springer, 79–94
29	EBRD (2017). World’s multilateral banks to join forces with private sector to boost sustainable and inclusive infrastructure. European Bank for Reconstruction and Development (EBRD) Press Office
30	A Estache, A Iimi (2010). Bidder asymmetry in infrastructure procurement: Are there any fringe bidders? Review of Industrial Organization, 36(2): 163–187 https://doi.org/10.1007/s11151-010-9242-z
31	I Eyal, A E Gencer, E G Sirer, R van Renesse (2016). Bitcoin-NG: A scalable blockchain protocol. In: 13th USENIX Symposium on Networked Systems Design and Implementation. Santa Clara, 45–59
32	Y Gong, J H Liao (2019). Blockchain technology and simulation case analysis to construct a big data platform for urban intelligent transportation. Journal of Highway and Transportation Research and Development, 13(4): 77–87
33	Government Office for Science (2016). Distributed Ledger Technology: Beyond block chain. A Report by the UK Government Chief Scientific Adviser
34	P Hacker, C Thomale (2018). Crypto-securities regulation: ICOs, token sales and cryptocurrencies under EU financial law. European Company and Financial Law Review, 15(4): 645–696 https://doi.org/10.1515/ecfr-2018-0021
35	C Herweijer, D Waughray, S Warren (2018). Building block(chain)s for a better planet. World Economic Forum: Fourth Industrial Revolution for the Earth Series
36	H Hyvärinen, M Risius, G A Friis (2017). Blockchain-based approach towards overcoming financial fraud in public sector services. Business & Information Systems Engineering, 59(6): 441–456 https://doi.org/10.1007/s12599-017-0502-4
37	M Iansiti, K R Lakhani (2017). The truth about blockchain. Harvard Business Review, 95(1): 118–127
38	W A Kaal (2018). Initial coin offerings: The top 25 jurisdictions and their comparative regulatory responses. University of St. Thomas Legal Studies Research Paper No. 18-07
39	S M Khan, M Chowdhury, E A Morris, L Deka (2019). Synergizing roadway infrastructure investment with digital infrastructure for infrastructure-based connected vehicle applications: Review of current status and future directions. Journal of Infrastructure Systems, 25(4): 03119001 https://doi.org/10.1061/(ASCE)IS.1943-555X.0000507
40	J Kim (2016). Handbook on Urban Infrastructure Finance. Québec: New Cities Foundation
41	N Kshetri (2017). Blockchain’s roles in strengthening cybersecurity and protecting privacy. Telecommunications Policy, 41(10): 1027–1038 https://doi.org/10.1016/j.telpol.2017.09.003
42	E Kyriakides, M Polycarpou (2014). Intelligent Monitoring, Control, and Security of Critical Infrastructure Systems. Berlin: Springer
43	P Laurent, T Chollet, M Burke, T Seers (2018). The tokenization of assets is disrupting the financial industry. Are you ready? Inside Magazine, 19: 62–67
44	Y Lootsma (2017). From Fintech to Regtech: The possible use of Blockchain for KYC.
45	Z Lu (2018). Feasibility Assessment Framework for Financing Public–Private Partnership Infrastructure Projects through Asset-backed Security. Dissertation for the Doctoral Degree. New York: Columbia University
46	Z Lu, F Pena-Mora, S Q Wang, T Liu, D Wu (2019). Assessment framework for financing public–private partnership infrastructure projects through asset-backed securitization. Journal of Management Engineering, 35(6): 04019027 https://doi.org/10.1061/(ASCE)ME.1943-5479.0000708
47	L Marshall, P Jack (2018). Hunting high and low: The decline of the small IPO and what to do about it. Mossavar-Rahmani Center for Business and Government Associate Working Paper Series No. 86
48	J Mason (2017). Intelligent contracts and the construction industry. Journal of Legal Affairs and Dispute Resolution in Engineering and Construction, 9(3): 04517012 https://doi.org/10.1061/(ASCE)LA.1943-4170.0000233
49	E Mengelkamp, J Gärttner, K Rock, S Kessler, L Orsini, C Weinhardt (2018). Designing microgrid energy markets. A case study: The Brooklyn Microgrid. Applied Energy, 210: 870–880 https://doi.org/10.1016/j.apenergy.2017.06.054
50	O B Mora, R Rivera, V M Larios, J R Beltrán-Ramírez, R Maciel, A Ochoa (2018). A use case in cybersecurity based in blockchain to deal with the security and privacy of citizens and smart cities cyberinfrastructures. In: IEEE International Smart Cities Conference (ISC2). Kansas City, 1–4
51	M Mylrea, S N G Gourisetti (2017). Blockchain: A path to grid modernization and cyber resiliency. In: North American Power Symposium (NAPS). Morgantown, WV: IEEE, 1–5
52	S Nakamoto (2008). Bitcoin: A peer-to-peer electronic cash system.
53	A Norta, C Fernandez, S Hickmott (2018). Commercial property tokenizing with smart contracts. In: International Joint Conference on Neural Networks (IJCNN). Rio de Janeiro, 1–8
54	OECD (2019). Blockchain technologies as a digital enabler for sustainable infrastructure. OECD Environment Policy Papers No.16. Paris: OECD Publishing
55	H Ohashi (2009). Effects of transparency in procurement practices on government expenditure: A case study municipal public works. Review of Industrial Organization, 34(3): 267–285 https://doi.org/10.1007/s11151-009-9208-1
56	C Pauw (2019). What is an STO, explained.
57	D Ramsey, M El Asmar (2020). Cost and schedule performance analysis of transportation public–private partnership projects. Journal of Legal Affairs and Dispute Resolution in Engineering and Construction, 12(1): 04519032 https://doi.org/10.1061/(ASCE)LA.1943-4170.0000328
58	N Reiff (2019). What is ERC-20 and what does it mean for Ethereum?
59	J Rohr, A Wright (2017). Blockchain-based token sales, initial coin offerings, and the democratization of public capital markets. Hastings Law Journal, 70(2): 463–524
60	D Sandor (2019). Why infrastructure isn’t funded by the community…and why it should be.
61	Security Token Market (2019). Complete list of security token exchanges & marketplaces.
62	J Smith, M Vora, H E Benedetti, K Yoshida, Z Vogel (2019). Tokenized securities and commercial real estate. MIT Digital Currency Initiative Working Group Research Paper
63	S Stein Smith (2020). Stablecoins & the decentralized organization. In: Stein Smith S, ed. Blockchain, Artificial Intelligence and Financial Services. Cham: Springer
64	M Swan (2015). Blockchain: Blueprint for A New Economy. Sebastopol, CA: O’Reilly
65	The Economist (2014). Infrastructure financing: A long and winding road.
66	The Tokenist (2019). Security tokens explained for beginners (Everything you need). /
67	Y Tian, Y Zhang, R E Minchin, A Ashutosh, C Kan (2020). An innovative infrastructure financing instrument: Blockchain-based tokenization. In: Construction Research Congress, Tempe. Manuscript submitted
68	M C Tomkies, L P Valentine (2019). Are cryptocurrencies on their way to becoming a trusted payment alternative? Banking & Financial Services Policy Report, 38(1): 1–4
69	S Underwood (2016). Blockchain beyond bitcoin. Communications of the ACM, 59(11): 15–17 https://doi.org/10.1145/2994581
70	D Uzsoki (2019). Tokenization of infrastructure: A blockchain based solution to financing sustainable infrastructure. International Institute for Sustainable Development
71	F Vogelsteller, V Buterin (2015). EIP-20: ERC-20 Token Standard. Ethereum Improvement Proposals No. 20.
72	I Walter (2016). The Infrastructure Finance Challenge. Open Book Publishers
73	B J Zhong, P Adriaens (2020). Digital financing model for bridges in Washington State. In: International Conference on Transportation & Development. Seattle, WA, 300–308
74	Ziyen (2019). Confidential private placement offering memorandum. Security Token Offering (STO) Regulation D Rule 506(c). Ziyen Inc.

[1]	Liupengfei WU, Weisheng LU, Jinying XU. Blockchain-based smart contract for smart payment in construction: A focus on the payment freezing and disbursement cycle[J]. Front. Eng, 2022, 9(2): 177-195.
[2]	Xuling YE, Ningshuang ZENG, Markus KÖNIG. Systematic literature review on smart contracts in the construction industry: Potentials, benefits, and challenges[J]. Front. Eng, 2022, 9(2): 196-213.
[3]	Hongfeng CHAI, Quan SUN, Yu ZHOU, Tao ZHU. Design of a digital currency information system based on the UnionPay network[J]. Front. Eng, 2020, 7(4): 471-484.
[4]	Algan TEZEL, Eleni PAPADONIKOLAKI, Ibrahim YITMEN, Per HILLETOFTH. Preparing construction supply chains for blockchain technology: An investigation of its potential and future directions[J]. Front. Eng, 2020, 7(4): 547-563.
[5]	Ziyao ZHANG, Zhenmin YUAN, Guodong NI, Han LIN, Yujie LU. The quality traceability system for prefabricated buildings using blockchain: An integrated framework[J]. Front. Eng, 2020, 7(4): 528-546.
[6]	Gjorgji SHEMOV, Borja GARCIA de SOTO, Hoda ALKHZAIMI. Blockchain applied to the construction supply chain: A case study with threat model[J]. Front. Eng, 2020, 7(4): 564-577.
[7]	Botao ZHONG, Haitao WU, Lieyun DING, Hanbin LUO, Ying LUO, Xing PAN. Hyperledger fabric-based consortium blockchain for construction quality information management[J]. Front. Eng, 2020, 7(4): 512-527.
[8]	Yili REN, Jia LIANG, Jian SU, Gang CAO, He LIU. Data sharing mechanism of various mineral resources based on blockchain[J]. Front. Eng, 2020, 7(4): 592-604.
[9]	Jianxia GONG, Lindu ZHAO. Blockchain application in healthcare service mode based on Health Data Bank[J]. Front. Eng, 2020, 7(4): 605-614.
[10]	Qiang ZHANG, Baoyu LIAO, Shanlin YANG. Application of blockchain in the field of intelligent manufacturing: Theoretical basis, realistic plights, and development suggestions[J]. Front. Eng, 2020, 7(4): 578-591.
[11]	Shuai LI, Da HU, Jiannan CAI, Hubo CAI. Real option-based optimization for financial incentive allocation in infrastructure projects under public–private partnerships[J]. Front. Eng, 2020, 7(3): 413-425.
[12]	Andrew LOCKLEY, Zhifu MI, D’Maris COFFMAN. Geoengineering and the blockchain: Coordinating Carbon Dioxide Removal and Solar Radiation Management to tackle future emissions[J]. Front. Eng, 2019, 6(1): 38-51.
[13]	Jun WANG, Peng WU, Xiangyu WANG, Wenchi SHOU. The outlook of blockchain technology for construction engineering management[J]. Front. Eng, 2017, 4(1): 67-75.

Viewed

Full text

Abstract

Cited

Shared

Discussed