Tokenizing Islamic, real-world assets via decentralized autonomous organizations

The tokenization of equity, debt, and physical assets has gained global attention, but market adoption remains slow due to regulatory uncertainty, liquidity solutions, and vehicle structuring.

Islamic Fintech entrepreneurs are making strides within crypto and tokenization, but the sector has yet to test the full bounds of Shariah compliance.

Real-world assets (RWAs) include security tokens, stablecoins, and decentralized autonomous organizations (DAOs), among others.

While stablecoins are usually backed by Treasury Bills, their collateralization could also include precious metals or Sukuk. Security tokens as public company cross-border feeders and property-holding DAOs are emerging as strong use cases.

A major challenge in tokenizing RWAs is finding willing owners of art, collector cars, real estate, mineral rights, or even patents who are willing to transfer them into a special-purpose vehicle (SPV), which then mints and sells ownership tokens. Directly tokenizing an asset is possible but complex because all holders would need to be listed on the ownership deed.

RWAs provide liquidity for asset owners while retaining partial control. Lofty AI, a U.S. platform, enables property owners to convert their properties into tokenized cooperatives (DAOs). In this system, the property deed is transferred to a Wyoming LLC, and then the Assessed Value ÷ $50 = Initial Tokens Supply. The owner may sell up to 100% of tokens, with no new buyer holding more than 15% to ensure voting diversity.

DAO property token holders - whether for residential, commercial, or farmland properties - equitably share in rents, profits, losses, and expenses. Lofty AI’s model benefits from automated liquidity pools, allowing tokens to be traded rather than relying on slow peer-to-peer transactions.

A major bottleneck for RWAs is that asset owners must initiate the tokenization process. DAOs could accelerate growth by acquiring assets with token holder approval. Structuring RWAs as Cooperative DAOs ensures each token holder has voting rights and ownership responsibilities, like an employee-only owned company. This model is not considered a security in many jurisdictions, making it more accessible globally. Shariah compliance is facilitated through partner votes and Shariah board approval.

The domicile of an SPV is crucial in ensuring it can accommodate ownership changes with liquid tokens. Lofty AI chooses Wyoming because the State does not require a public register of owners, allowing for seamless transfers. In contrast, Stake in Dubai offers 500 dirham traditional shares in apartments, but these have limited liquidity, as beneficial ownership changes must be updated with the Dubai Land Registry.

This raises a key question: If RWA ownership cannot be freely traded in certain regions, will those regions be left behind unless they implement the policy changes needed to realize the benefits of tokenization?

The Global Islamic Fintech Report 2024/25 can be downloaded here.