LCX Gains Regulatory Approval as a Physical Validator to Enable Tokenization of Assets

We are pleased to announce that LCX has received regulatory approval as a Physical Validator according to the Liechtenstein Blockchain Act (TVTG). This makes us the first and only company in Liechtenstein, as well as the first company worldwide, to attain this registration.

LCX Becomes First Physical Validator in Liechtenstein and Globally:
Bridging the Digital and Physical World Enabling Tokenization of Assets.

Our application for this regulator registration was filed more than 2 years ago. Since the application in 2020 we have provided a variety of documents to clarify details of our role as Physical Validator. This includes a formal Physical Validator Application as well as Physical Validator Operational Procedure explaining all details of the tokenization process managed by LCX. 

Legal Clarity to Enable Tokenization of Real World Assets – Bridging Physical and Digital

As a Physical Validator, we are responsible for maintaining the integrity and security of the tokenized assets on the blockchain. This involves verifying the authenticity of underlying assets and the physical safe-keeping of the real-world assets. The role of Physical Validator is critical to the overall health and stability of the blockchain industry, as it helps to prevent fraud and other malicious activities.

“In simple words, tokenization can turn almost any asset, either real or virtual, into a digital token and enables the digital transfer, ownership and storage without the necessary need of a central third party or intermediary.” – EY Report: Tokenization of Assets Decentralized Finance (DeFi)

The Tiamonds project by LCX demonstrates the potential for tokenizing physical assets. Tiamonds is a platform for tokenizing diamonds, allowing investors to purchase and trade diamond assets using blockchain technology.

Tokenizing ownership rights to a diamond is an example of bringing a physical, real-world asset online. In this case, as a Physical Validator, we are responsible for ensuring that the diamond exists and ensuring that it is securely stored. As a regulated and liable party, we play a critical role in maintaining the integrity and security of the tokenization process.

With regulatory approval as a Physical Validator, we are well positioned to expand the Tiamonds platform in 2023 and continue our efforts to drive innovation and adoption in the blockchain industry.

Our role as a Physical Validator includes analog and digital safekeeping processes.

Analog Safekeeping Process

As the Physical Validator LCX will guarantee (gewährleisten) that the rights from the “real world: will be fully embodied in the digital token and can be enforced. The Analog Safekeeping Process is a process to ensure that the value, availability, safety and similar characteristics of the offline objects are preserved and maintained throughout the tokenization process and during the token ownership.

Digital Safekeeping Process

Beside the analog safekeeping the Physical Validator also has to make sure that the rights are represented in the digital token in a way that is accessible for the token holders and can be verified by them. This means that the Physical Validator will need to audit the smart contract, the basic information of the token issuer and other legal documents, to fully ensure that the contractual and legal rights are embodied in the digital token. 

Physical Validator Definition

Liechtenstein introduced the Token and Trusted Technology Service Provider Act, also known as the Blockchain Act, or in German Gesetz über Token- und VT-Dienstleister, Token- und VT-Dienstleister-Gesetz (“TVTG”).

According to Article 2 at TVTG the Physical Validator is defined as the following:

“Physical Validator”: a person who ensures the enforcement of rights in accordance with the agreement, in terms of property law, represented in Tokens on TT systems;

According to Article 17 at TVTG the Physical Validator must introduce special internal control mechanisms, such as:

1. e) for Physical Validators, their liability in the event that rights to property guaranteed by the Physical Validator cannot be enforced in accordance with the contract; 

According to Article 33 at TVTG the Physical Validator has an important responsibility towards Token Holders, including publication requirements of the basic information:

“for the issuance of Tokens, the rights to property represent: 

1. evidence of a registered Physical Validator regarding ownership of the property; and
2. a confirmation from a registered Physical Validator, that the rights registered in the issued Tokens are also enforceable in line with the basic information. 

To summarize, the Physical Validator ensures the contractual enforcement of the legal rights represented by the tokens issued on TT Systems with respect to objects as defined by local property law (“Sachenrecht”). This includes the safekeeping of the objects in the interests and for the benefits of the Token Holders,  assessing, validating or confirming the value  of the objects, identification of the owner and/or confirmation of the legitimacy and the provenance of the ownership with respect to the physical object.

In this capacity LCX AG now plans to offer services as a Physical Validator as an integral part  of our strategy to be a full range service provider covering all activities as a Trusted Technology Service Provider.

Tiamonds – Tokenized Diamonds

Tiamonds is the world’s largest blockchain-powered marketplace for diamond NFTs. Each Tiamond is a non-fungible token (NFT) that is 1-to-1 backed by a unique and non-fungible diamond that is identified by a GIA certificate and held in secure storage, insured by Lloyds of London. The link between the physical diamond and the digital NFT is ensured by LCX’s regulated role as a Physical Validator according to the Liechtenstein Blockchain Act (TVTG). This makes Tiamonds a secure and reliable platform for investing in diamond assets using blockchain technology.

Real World Diamonds as NFTs on the Blockchain – Diamonds as a new investment class and made tradeable as a digital asset.