Tokenization of Loans

by | Oct 27, 2020 | Token | 0 comments

Tokenization is the process of converting real-world assets into fungible stores of value that can be exchanged between parties. Tokenization is crucial because it enables almost everything to be traded securely, transparently and traceably on a blockchain network. Anything you can think of can be tokenized- from bonds to commodities to real estate to loans.

How Tokenization Works

Tokens are classified into three primary classes:

Payment tokens, such as Bitcoin and Ethereum. They substitute fiat currencies issued by central banks and are used to make and receive payments.

Utility tokens, like the Binance Coin (BNB) and the Tokenizer Coin (TOKN). They are designed to enable token holders to use the services of a blockchain company.

Asset-backed tokens (ABTs). They represent tangible and digital assets. They can express ownership interest in real estate or equity in businesses.

What is Loan Tokenization?

Loan tokenization is classified in the third category of tokens and enables a loan to be split up through the issuance of tokens. These tokens are traded on a secondary marketplace, like the Tokenizer DEX.

Consider a LendLedger loan as an example. LendLedger is a blockchain application that gives credits to financially starved businesses. If LendLedger lenders decide to tokenize their loans, the loans would be dispersed in instalments to borrowers on a long term commitment. The cash generated would enable lenders to give more loans because of the added liquidity.

The Benefits of Tokenizing Loans

These are the benefits of a token over traditional methods of securitization:

Ease– securitization entails a lot of paperwork and due intelligence. With blockchain technology, participants’ reputation is trackable; hence, the requirement for burdensome and costly background checks is resolved.

A wider pool of investors/buyers– previously, securitization loans were bought as a whole, majorly by accredited institutional investors. Thus, only those who had the financial capacity to invest were allowed to participate. Still, even microloans were bundled together for investors. Tokenization facilitates fractional ownership of assets, eliminating entry barriers to investment. Not only does fractional ownership democratize who can invest in a loan, but also the number of loans that can be purchased individually.

Security– as tokenized loans are processed and transferred through the blockchain, their safety is guaranteed, and they can be traced, reducing the potential for corruption and allows more people to take part in the lending and borrowing sector.

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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