One of the major problems facing emerging markets is price volatility. Driven by political and economic factors, dependency on a few industries, and restrictions on market accessibility, this problem is worsened by a low or nonexistent regulatory framework. Though it does not seem that most of these factors will change soon, there are financial and technological innovations that can be used to stabilize emerging markets. Tokenization- a relatively new blockchain application, cryptographic representation of tradable assets- can the vehicle of realizing this dream.
The Problems Facing Emerging Markets: Participation and Liquidity
For markets to thrive and mature, there must be more movement of assets. In a layman’s language, markets require liquidity, which is mostly brought by participation. If there are few market participants, it is more likely that the asset in question is liquid. Consequently, the market becomes stagnated; investors sense higher risk and become dependent on a few influential sectors. Simultaneously, both foreign and local participants are unable to create wealth from within other market means.
More market participation leads to higher liquidity, but political-economic systems can hinder progress. Most emerging markets also run under political regimes that limit financial participation, with population swaths unable to access banking services or invest accounts remotely, hindering social mobility and liquidity and enlarging the wealth gap.
The Blockchain Solution
While blockchain technology can decentralize finance, it is the digital element that runs on it called “tokens” that can boost market participation. Basically, blockchain tokens represent any type of tradable asset, whether real-world or digital. In a 2018 report, Deloitte strongly expressed its voice in the true potential of Tokenization:
“The act of tokenizing assets threatens to disrupt many industries, in particular the financial industry, and those who are not prepared risk being left behind. […] We foresee that Tokenization could make the financial industry more accessible, cheaper, faster and easier, thereby possibly unlocking trillions of euros in currently illiquid assets, and vastly increasing the volumes of trades.”
These concepts have manifested into various use cases, from securities to unique assets, such as art pieces, which have gained significantly from Tokenization.
How Tokenization Stabilizes Emerging Markets
Tokenization presents an entirely new form of flexibility that is profoundly missing in the traditional mainstream financial ecosystem. This has led to the Tokenization of assets from the traditional financial system, such as securities, to unique items, like music.
Most investors in the emerging markets are locked out of standard asset investment opportunities due to high costs. But since tokens are easily divisible, their assets become shareable among a group of individuals, enabling them to participate with lower investments.
Instead of one individual buying a property- an illiquid asset with a valuation of $10,000,000-, a large group of investors can collectively buy and fractionally own it through Tokenization. Every investor is free to trade their digital shares easily without legal complications. This implies that retail investors previously shut out by high entry barriers can participate in the market now. Additionally, liquidity will also be boosted significantly.
This could trickle down to more fundraising opportunities for SMEs within emerging markets, struggling to find investment via traditional avenues.
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!
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