Unlocking Liquidity and Transparency in Aircraft Finance Through tokenization

The aircraft financing industry faces challenges related to liquidity, transparency, and risk management. In the secondary market, investors in aircraft-backed securities (SBAs) often struggle with limited exit options, lengthy transaction processes, and a lack of real-time asset monitoring.

Our Proof of Concept (POC) for tokenizing secondary market aircraft-backed securities (SBA Tokenization) using blockchain, AI-powered auditing, and Decentralized Physical Infrastructure Networks (DePIN) aims to:

• Increase liquidity for SBA holders by enabling fractionalized ownership and secondary trading
• Enhance transparency through AI-driven risk assessment and real-time asset monitoring
• Expand investor access beyond traditional aviation finance participants
• Improve regulatory compliance and reporting using automated auditing

Challenges in Secondary Market Aircraft Financing

Liquidity Constraints

• Traditional SBA holders, including leasing firms, banks, and institutional investors, face limited secondary market liquidity.
• Selling an SBA position requires complex negotiations and approvals, delaying capital reallocation.
• Investors often hold aircraft-backed securities to maturity due to a lack of efficient exit strategies.

Lack of Real-Time Asset Transparency

• Current valuation models depend on historical performance data and financial statements rather than real-time aircraft condition and utilization.
• Secondary SBA investors have limited access to flight data, engine performance, maintenance records, and airline creditworthiness.
• Aircraft-backed securities are priced with outdated risk models, leading to valuation discrepancies.

Institutional Barriers to Broader Investor Participation

• Aircraft financing is traditionally reserved for institutional investors, limiting access to alternative capital sources.
• Retail and high-net-worth investors lack access to the aircraft ABS market due to regulatory and structuring complexities.
• The absence of fractional ownership models makes minimum investment thresholds prohibitively high.

The Tokenization Solution for Secondary SBAs

Key Benefits of SBA Tokenization

• Fractional ownership enables smaller-scale investors to participate in aviation finance.
• Blockchain-based smart contracts automate lease payment distributions and investment governance.
• AI-powered asset monitoring ensures real-time tracking of aircraft performance, reducing risk.
• DePIN-based decentralized oracles validate live asset utilization, maintenance status, and airline risk.

This model allows institutional SBA holders to digitize existing securities, enhancing tradability and unlocking liquidity.

How the POC Works

• Asset Selection & Legal Structuring

  1. Identify Existing SBAs for Tokenization – Partner with institutional holders to select aircraft-backed securities for fractionalization.
  2. Legal Compliance Review – Ensure alignment with MiCA and relevant aviation finance regulations.
  3. SPV Structuring & ICID (International Cadastral Identification) for Aircraft – Create an SPV for the tokenized asset and assign a unique identifier for tracking.

• Tokenization & Smart Contract Deployment

  1. Fractionalization of SBA Holdings – Convert securitized assets into digital tokens, representing proportional ownership.
  2. Automated Lease Payment Distribution – Smart contracts ensure direct and transparent payment flows to token holders.
  3. Investor Onboarding & Compliance – KYC/AML-compliant onboarding process for accredited and institutional investors.

• AI & DePIN-Powered Risk Assessment

  1. AI-Driven Valuation Models – Machine learning algorithms analyze aircraft usage, maintenance history, and lease performance.
  2. DePIN-Powered Real-Time Monitoring – Oracles fetch aircraft flight logs, engine condition reports, and airline financial health metrics.
  3. Automated Regulatory Auditing – AI-generated compliance reports streamline investor disclosures.

• Liquidity & Secondary Trading

  1. Institutional Market Access – Tokenized SBAs can be traded on regulated secondary markets.
  2. Stablecoin-Pegged Collateralization – SBA tokens can be used in DeFi lending markets, improving capital efficiency.
  3. Yield Distribution – Smart contract automation ensures timely and transparent payment of lease proceeds.

Technology Stack & Infrastructure

Blockchain & Tokenization Framework

• Hedera Hashgraph (HTS) for efficient token issuance and smart contract execution.
• Ethereum interoperability for liquidity across multiple blockchain ecosystems.
• Programmable compliance enforcement through tokenization standards.

AI-Driven Risk Monitoring

• Predictive analytics for aircraft value fluctuations and lessee financial stability.
• Automated default detection using real-time lease payment analysis.

DePIN & Decentralized Oracles

• Live aircraft utilization tracking from flight record APIs.
• Engine performance validation through manufacturer data integrations.
• Geospatial risk assessment for aircraft depreciation forecasting.

Regulatory & Compliance Framework

1. – MiCA (Markets in Crypto-Assets Regulation) for European tokenization compliance.
2. – Aviation ABS Regulatory Standards ensuring alignment with aircraft-backed securities frameworks.
3. – KYC/AML & Institutional Investment Oversight for secure participation.

Expected Impact & Benefits

Financial Benefits

• Enables SBA holders to unlock liquidity faster without waiting for asset maturity.
• Reduces capital entry barriers, broadening investor access.

Operational Efficiency

• Shortens transaction timelines for SBA resales through automated smart contract execution.
• Provides real-time risk monitoring, reducing reliance on outdated reports.

Market Expansion

• Facilitates institutional and alternative capital participation in aircraft-backed securities.
• Introduces a new secondary market for SBA trading, increasing liquidity

The Proof of Concept (POC) Initiative

1. Toqenize is launching a pilot POC to validate tokenized SBA trading and real-time risk assessment. The POC will test tokenization feasibility, regulatory alignment, and market adoption.

2. The POC’s Phases

   • Phase 1: Selection of existing SBAs for tokenization and legal structuring.
   • Phase 2: Deployment of tokenized securities with smart contract automation.
   • Phase 3: AI and DePIN-powered asset risk monitoring integration.
   • Phase 4: Secondary market trading and institutional investor engagement.

CONCLUSION

The tokenization of secondary market SBAs presents a scalable, institutionally viable solution for increasing liquidity, enhancing transparency, and improving capital efficiency in aircraft finance.

This POC serves as the foundation for future tokenized aviation debt issuances, expanding beyond SBAs to structured aircraft leasing and securitized financing instruments.