The Token Economy: The Trillion-Dollar Market

by | Aug 14, 2020 | Industry | 0 comments

The dawn of decentralization is finally here with us! Tokenization is revolutionary and will transform the capital market landscape beyond recognition. Blockchain is undeniably the 21st Century’s ‘big bang’ moment.

It may be difficult to believe, but soon you could own a fraction of Lionel Messi’s worthy. You could buy a few square meters of an apartment in New York or maybe a share in a collectible Formula 1 race car. All these will be facilitated by tokenization. The world is becoming increasingly fractionalized daily, empowering people to shape their financial destinies.

Whether you are deeply immersed in the crypto world or reading your first article about blockchain technology, it is evident that tokenization is one of the highest visions of the 21st Century. Spare some minutes and learn about the possibilities that a tokenized world holds.

What is Asset Tokenization?

In contemporary society, every asset is identity-centric. That implies your apartment, land, salary, and stocks are all tied to your name.

When these assets are tokenized, they are broken down into smaller ownership stakes. In simple terms, they can be fractionally owned by several parties. Assets are tokenized using security tokens- any digital currency that pays dividends or profit shares.

A security token develops its value from an underlying real-world asset. For example, a million-dollar apartment can be divided into 1000 security tokens, each representing a 2% stake in the property and its future cash-flows such as rental. Since security tokens are categorized under investment contracts, they are subject to government regulations.

How does Tokenization Work?

First, real-world properties are moved into a blockchain. Then, blockchain tokens are used to symbolize ownership or participation stake in these assets in the form of decentralized protocols. This allows tokens to be traded on various exchanges, like the Tokenizer Exchange. Ultimately, many people can invest in different illiquid assets such as real estate/REIT, stocks, bonds, VC/PE/Hedge funds, metals and commodities, FX currencies, oil and gas, sports, and timberland because of lower minimum investment requirements.

When an asset is tokenized, one security token can represent a fraction of its value. Since security tokens are tradable, the process is similar to buying shares of a public firm, except that it is on a blockchain.

Benefits of Asset Tokenization

From an asset owner’s perspective:

Increased liquidity. Assume that Dariel urgently needs $5000, and his apartment is valued at $500,000. Daryle’s assert can be tokenized into 100 security tokens each worthy $500. Now, he can quickly sell two security tokens to raise $5000 instead of tediously trying to sell the whole apartment, therefore making the apartment a more liquid asset.

Fair prices. Illiquid assets lack established markets. Therefore, owners of exotic assets like eSports teams are required to offer buyers incentives such as illiquidity discounts, reducing the price of their assets. The increased liquidity as a result of fractional ownership will eradicate illiquidity discounts. Besides, tokenization will allow investors to charge reasonable rates and sell tactically over an extended period.

Lower cost of paper-ownership. Traditionally, transferring the ownership of an asset involves seeking legal services and company secretaries to handle the paperwork of the transaction. Besides, the whole process is time-consuming. Asset tokenization automates part of the process, saving both money and time.

From an investor’s perspective.

Increased liquidity. Assume that Eveline is interested in investing in real estate but she only has $13,000. Since Dariel just tokenized his apartment into 100 security tokens, Eveline can own part of Dariel’s property. In fact, Eveline can diversify her investments by investing$5,000 in Dariel’s asset, $4,000 in a piece of artwork, and $4000 in a racehorse. Therefore, tokenization allows investors to take advantage of the liquidity of illiquid and exotic assets.

Shorter lock-up period. Lock-up periods are typically part of illiquid and large investments, and they limit investors from selling their stakes. Asset tokenization increases the liquidity of assets, giving investors more flexibility with their assets.

More transparency. Investors are often unaware of the risk exposure when investing in assets since asset owners only provide the better part of the deal to attain the highest value possible. Blockchain technology will help investors make more informed investment decisions and easily monitor their investments.

What can be tokenized?

From traditional assets such as real estate/REIT, stocks, bonds, VC/PE/hedge funds, metals and commodities, FX currencies, oil and gas, artwork, sports teams and celebrities, and timberland, companies all over the world are leveraging on the power of blockchain to benefit from the token economy.

Examples of Existing Tokenization Platforms

Polymath

Polymath provides both technical and legal solutions for securitizing stocks, bonds, and other assets on a blockchain. The company has its ST-20 token standard for it and its native smart contracts. Besides, they have their native token- POLY- that is used as an economic unit for all activities on the Polymath blockchain.

Securitize

Securitize is another common decentralized marketplace that offers an end-to-end platform for issuers that wants to tokenize assets. The company manages the processing of the solicited investors from login to capital received, and the issuance and management of the security tokens throughout the lifetime of the asset. They accomplish this through their DS protocol that works with DS tokens.

Tokenizer

Tokenizer, the leading blockchain-based investment platform is bringing to market several asset-backed tokens and is playing a pivotal role in adoption and tokenization all sorts of traditional assets from real estate to funds and commodities in three major ways

Tokenization. Convert assets into asset-backed tokens (ABTs), enabling efficient and more accessible fundraising, investing, and trading.

Fundraising. Raise funds from one of the biggest pool of investors globally, such as institutions, family offices, HNIS, and angels.

Trading and Liquidating. Trade both traditional assets and digital assets 24/7. Our platform enables our users to easily trade and swap cryptocurrencies to exit before underlying assets mature.

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