The Regulatory Hurdle Facing Asset-Backed Tokens

by | Oct 27, 2020 | Token | 0 comments

Over a decade ago, a pseudonymous individual by the name Satoshi Nakamoto published the Bitcoin whitepaper. Because of his secure cryptographic algorithm, and the capacity to operate without a central point of authority, Bitcoin succeeded in its daring mission to disrupt the global financial sector and enable people to transact freely without the need to “shake hands.”

As central banks struggle with deflationary pressures caused by the digital economy, financial analysts have failed to generate a stable framework about cryptocurrencies and their consequences to the economy and capital markets. However, there is something to smile about. The idea of asset tokenization- representing ownership rights for real-world assets digitally on a blockchain network- has already been actualized. With that in mind, and despite developments in revolutionary technology and the potential to unlock new pots of liquidity in previously illiquid assets, security tokens must overcome the regulatory hurdle to thrive.

The Primary Aspects of Asset Tokenization

Asset-backed tokens (ABTs) are programmable, digital assets. Programmable since they can follow business-based logic statements, digital because they are an electronic representation of underlying physical assets. Like initial coin offerings (ICOs), ABTs are issued via security token offerings (STOs), but with one big difference: ABTs are often sandboxed in the existing securities regulatory framework; hence, they come with a set of legally binding rights for investors and requirements for issuers, sellers and exchanges. This exclusive blend is what makes them attractive to investors and regulators.

ABTs are Versatile

Let us see how the token economy functions. Let us assume you own a home, but you were laid off from your workplace because of the COVID19 pandemic, and you need cash to take care of your family. If you have already depleted your savings and do not have any other side hustle, you are almost compelled to sell your house, and if it is your only investment, you probably do not want to take that direction.

With tokenization, you can slice up the value of your property into security tokens and sell a portion of them to a global pool of investors. In this case, tokenization solves two problems at a go: it provides a “liquidity premium” for the underlying asset and enables market access to a new class of investors.

Therefore, ABTs unlock new opportunities and liquidity for issuers and investors. Asset-backed tokens are versatile because they are applicable in tangible assets (commodities, shares, real estate, precious metals, and artwork) and intangible assets (like music property rights). But before that happens, capital markets must be willing to automate

Certainly, ABTs could transform the capital markets. Nevertheless, their pace of adoption is based on the regulation factor. Since the existing regulations govern ABTs, their rate of adoption should increase. There are encouraging signs that regulators are ready to quickly catch up with Germany, Switzerland, and Luxembourg as the regulatory flag bears in Europe.

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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