Tokenization of Commodities: Harnessing Transformative Power Through Permissionless Innovation

by | Jan 7, 2021 | Tokenization | 0 comments

The rapidly evolving field of technology is presenting exciting opportunities to the commodity market. Blockchain has transformed commodity trading by bringing improved security, liquidity and value to the marketplace. 

The commodity market plays an integral function in the international economy as big companies and governments trade raw materials, like gold, copper, tea, coffee beans, oil, grains, etc. Part of the financial network that facilitates commodity trading are the trading marketplaces. These markets are always lively with real-time prices in response to global demand, supply, political activities and currency rates.   

What happens in the commodity market matters, since it affects almost all other markets. However, the age-old and well-established market is ready for a major upgrade, which will transform the way participants issue, buy and sell commodities. 

The Tokenization of Commodities 

With the mainstream adoption of blockchain taking place globally, the power to digitize and evaluate tradable assets on the blockchain has emerged as an in-demand service. Asset tokenization simply refers to the digitization of real-world assets on a blockchain. Tokenized assets can be traced, moved and traded much easily. Asset-backed tokens lack intrinsic value, but since they represent the underlying assets, they derive their value from those assets. Just like a stablecoin pegged to another currency, an asset-backed token is pegged to the price of a commodity. 

Soon, it appears that every tradable asset will be represented, tracked, and traded on the blockchain. The tokenization of commodities is already happening in the blockchain world. Projects, such as Dix, Oilcoin, and Wepower are tokenized gold, oil, and green energy sources respectively. The benefits derived by using blockchain technology give commodity market participants a more effective and transparent system. This further enables easier project funding, dividend disbursements, and a trustless ecosystem. 

The Benefits of a Tokenized Commodity Market

There are numerous benefits of tokenizing commodities to existing industry players and a new class of investors. 

Fractional Ownership

Asset-backed tokens can be broken down into smaller units, meaning it is possible to own a fraction of an asset instead of owning it in its entirety. Just like you do not have to buy one full Bitcoin, the freedom to purchase say 10% of a barrel of oil or five grams of gold instead of a whole bar gives many retail investors access to this market. The financial barrier to entry is lifted; hence, a larger pool of investors will able to participate in commodity trading. 

Liquidity 

Apart from benefiting investors, tokenization of commodities also benefits the commodity markets by boosting market efficiency and liquidity. As more people actively participate, more liquidity and market depth tighten up the spread giving all market participants easier and fairer price discovery.  

Cost Reduction and Simpler Process 

Traditional legacy systems, including the commodity market, are often flawed with inefficiencies. Besides, the commodity market is invested with middlemen ready to impose a fee each step of the buying and selling of commodities. However, the whole trading experience is much more streamlined when you purchase tokenized commodities on a token marketplace, such as the Tokenizer DEX.  

24/7 Trading 

While the international financial markets are huge and borderless, they have limited operating hours. However, cryptocurrency markets never close for sleeping or weekends. You can trade your digital assets at any time of the week. Yes there are slower and busier hours, but the cryptocurrency markets are always open for business. 

Through the power of tokenization, commodities would be available for trade against conventional digital currencies on a 24/7 basis, presenting opportunities not available previously. 

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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