Asset Tokenization: A New Chapter for the Capital Markets Industry

by | Nov 19, 2020 | Token | 0 comments

Asset tokenization, which entails fractional ownership of tangible assets and converting them into digital tokens on the blockchain, is already having a significant impact in capital markets. However, its adoption rate is primarily influenced by two factors.

Is Asset Tokenization a Revolution or an Evolution?

Over a decade ago, the pseudonymous Bitcoin inventor created the first prototype of a digital currency. As a result of its secure cryptographic technique and the power to function without an intermediary, Bitcoin strived to completely disrupt the financial sector and enable peers to transact with one another without the need to “shake hands.”

Today, as central banks struggle with deflationary pressure from the digital economy, financial analysts find it difficult to create a reliable framework for cryptocurrencies and their impacts on the global economy and capital markets. However, there is a silver lining. Asset tokenization, the process of dividing divisible and indivisible assets into digital tokens on the blockchain, is already influencing the capital markets significantly. With that in mind, and despite cutting-edge technology advancements and the potential to unlock new liquidity pots in previously illiquid assets, there are two main hurdles to overcome. 

The Primary Ingredients of Asset Tokenization

Asset-backed tokens are programmable, digital assets. They are programmable since they can align nicely with business-based logic models, digital because they are literary digital representations of existing real-world assets. Just like initial coin offerings, asset-backed tokens are issued via security token offerings (STOs). The difference between the two offerings is asset-backed tokens are sandboxed in an existing financial securities regulatory framework and, therefore, come with legally binding rights for buyers and obligations for issuers, sellers, and marketplaces. This exclusive blend is what makes them more attractive to investors and regulators alike. 

Security Tokens are Versatile 

Have you ever thought of how the token economy works? Imagine you are a property owner, but you have lost your job and need money to use. Unless you have adequate savings or an alternative source of income, financial circumstances may compel you to sell your house, and if it is your only asset, you may not be a willing seller.

With tokenization, you can divide your property’s value into digital tokens and sell only a portion of them to interested investors. This way, tokenization kills two birds with a single stone: it provides a “liquidity premium” for the underlying assets, and it facilitates market access to a new investor class. Thus, asset-backed tokens unlock new opportunities and liquidity for both issuers and investors.

Asset-backed tokens are versatile since you can use them for tangible assets, such as commodities, shares, real estate, properties, artwork, and others, as well as intangible assets, like music and property rights. However, for this to fully take place, capital markets must digitize their operations and shift from paper-based manual-intensive workflows and clearing and settlement processes that take several days to complete. 

Irrefutably, asset-backed tokens could uplift the capital market sector. However, their adoption rate relies on two significant hurdles. The first one is regulation. Since security tokens must follow the existing law, their speed of adoption should increase. There are positive signs of regulators’ willingness to catch up quickly, with the likes of Germany, Switzerland, and Luxembourg accelerating the adoption rate in Europe.

But again, the lack of international standards for all securities casts some uncertainty on their cross-border development. The regulatory hurdle of cross-border transactions is as daunting for asset-backed token offerings as it is for any other security.

Tokenizer Blockchain Banking Platform

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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Post tags: Capital Markets


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