Are Asset-Backed Tokens the Blockchain Application of the Future?

by | Nov 1, 2020 | Industry | 0 comments

Although the world has gone “gaga” over the emergence of digital currencies (as of August 23, 2020, there are 6,537 cryptocurrencies listed on CoinMarketCap, with a total market capitalization of $360,935,425,160), most traditional investors do not see any tangible value in crypto, except where speculators and traders benefit from their volatile nature. For traditional investors, an alternative currency must be used in daily spending for it to have real economic value. 

Besides, there is a high demand for investments into digital assets on the market with the potential of more increase. Since Fintech is still at its infancy stages, financial service providers have failed to meet the demands for blockchain investments. Banks are underserving of the crypto market because of the volatile nature of cryptocurrencies. Tokenizer, a blockchain-based banking investment platform, fills this gap by enabling companies to tokenize their assets, and investors to invest in blockchain tokens with real value. 

What are Asset-Backed Tokens?

Generally, there are two main categories of digital currencies: coins and tokens. Coins, like Bitcoin (BTC) and Ripple (XRP), act as a form of money. They hold value and are used to pay for goods and services online. Tokens, such as asset-backed tokens, also have value. Still, unlike coins, their value is based on the underlying real-world assets they represent, e.g., commodities, real estate, stocks, hedge funds, artwork, venture capital, and more. 

Disadvantages of Using Coins in Large Scale and Daily Spending

The volatile nature of coins makes B2B and B2C transactions fraught with the threat of value fluctuations, which may put the buyer or seller at grave financial risk. Not many individuals and companies are willing to be paid in a currency that could depreciate in the next 30 minutes. 

For instance, the cost of a B2B transaction is $4 million, and the purchaser pays this amount in Bitcoins at a market price of $10,000. Considering the volatile nature of BTC, the price falls to, say &7,500 when the transaction is verified and approved by the other party. In such a scenario, the receiver will end up making significant losses. 

Fiat currencies are driven by complex economic factors like economic growth, inflation, and interest rates. Cryptocurrencies, on the other hand, are based on the belief that soon, they might replace fiat currencies and that buying them now could create wealth in the future. This state of affairs is not suitable for cryptocurrencies as an asset class with great potential. 

The Entry of Stablecoins 

The standard method of creating a stablecoin- whose price is not be affected much by market forces- is to peg its value to a real-world asset. The underlying asset can be a precious metal, fiat currency, commodities, or even real estate. The method attracts doubtful investors and makes these digital assets applicable to large scale and daily spending. 

Since Asset-backed tokens have a fixed number of assets backing them, you cannot experience an abundant supply in circulation. Therefore, to issue an asset-backed token, its value must be pegged to something richly available. 

The Future of Asset-Backed Tokens

Investors are excited than ever about asset-backed tokens because of the benefits they bring to the table. Apart from the stability aspect, tokens bring liquidity to previously illiquid assets and open up investment opportunities in various asset classes. 

Though asset-backed tokens are relatively new and some investors are waiting for things to unfold first, they will provide significant benefits to those willing to board the tokenization train. As the masses become aware of these advantages, more investors will likely invest in them in the near future. 

Tokenizer Blockchain Banking Platform

The Tokenizer is a blockchain investment banking system that champions accessible, transparent, and safe financial services. We believe that everyone deserves equal access to investment and fundraising opportunities. That is why we are democratizing access to capital for investors and fundraisers by making investing and fundraising efficient, safe, and accessible to everyone.

Are you in need of raising funds or investing in security tokens? Apply to raise funds through Tokenizer by filling this application form. If you want to invest in security tokens, sign up for a Tokenizer Investment Account today, and if you want to liquidate and trade-in Asset-Backed Tokens, we have a decentralized exchange designed for you! You can also contact us to order a metallic crypto card at $149 only.

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