Tokenization will change the way people invest in assets globally. Consider, often illiquid and privately held assets, like real estate, precious metals, commodities, loans, bonds, venture capital, and artwork. In principle any asset can be tokenized on the blockchain. This article analyses the assets likely to be tokenized. But before we dive deeper, let us see what asset tokenization is all about.
What is Asset Tokenization?
Tokenization is the process of creating and issuing digital instruments whose ownership and trading are registered and recorded on a blockchain. If these tokens are backed by real assets, they are classified as security tokens. Tokenization can be likened to the traditional process of securitization, with a modern twist. Asset-backed tokens (ABTs) are created via a similar process to initial coin offering (ICO), but have regulatory restrictions- meaning the underlying blockchain code has to do more to meet these restrictions. When issued, these instruments are commonly known as a Security Token Offering (STO).
An STO is used to create a digital representation of the rights and underlying performance- a security token- of an asset. A security token could represent a firm’s share, ownership of a property, or a unit of an investment fund. Security tokens are tradable and can be traded on a secondary market.
Tokenization does not change the form of the asset. Instead, it changes how the ownership and control of that asset is managed.
What can be Tokenized?
Tokenization possibilities are limitless since they permit both proof-of-ownership and fractional ownership of assets. Here is a list of common examples of assets that have been tokenized in various blockchain networks.
- Real estate- commercial, residential, etc.
- Precious metals
- Corporate debt
- Collectibles- classic cars, cigarette/pokemon cards, etc.
- Intellectual property (IP) – patents, licenses
- Income streams from sports teams, player contracts.
- Precious stones
- Music royalties
- Virtual domains
- Computer games
- Loyalty/reward points
- Luxury goods
The benefits of tokenization
Tokenization has the potential to create a more equal and fairer financial landscape by significantly minimizing the friction involved in the fundraising, investing, and trading of securities. Here are the four primary benefits that tokenization offers for both investors and fundraisers.
Asset-backed tokens bear the token holder’s rights and legal responsibilities embedded directly onto them and an irreversible record of ownership. These features bring transparency to transactions, enabling users to trust other market participants.
By tokenizing assets- especially private securities, or generally illiquid assets, like a piece of art, the tokens can then be bought or sold on a secondary market. This increases the potential to access a large pool of traders/investors, which can further lead to an increase in the liquidity, benefiting investors who enjoy more flexibility of trading their investments.
Importantly, with the right structures and regulation, tokenization opens up asset investment to a larger pool of investors by reducing entry barriers. ABTs are highly divisible, meaning people can buy tokens representing incredibly small portions of the underlying assets.
Since the issuing and trading of assets are cheaper and easier, tokenization creates a significant reduction in minimum investment amounts.
Faster and cost-effective transactions
Since the transaction of tokens is done using smart contracts- software algorithms integrated into a blockchain with execution functions based on a pre-defined set of rules- most parts of the exchange process- distribution and reporting- are automated. The automation reduces the administrative burden across the lifecycle of the instrument reducing costs compared to more traditional securitization approach.
Tokenizer: A Self-Service Tokenization Platform
At Tokenizer we are harnessing the power of blockchain to design and build an end-to-end decentralized finance and banking eco-system with the pioneering aim to innovate and advance capital creation, serving as a platform to invest in the future of finance. We aim to be the new venue linking capital to investment projects.
Do you want to understand more about Tokenizer and our platform, if so follow this link Tokenizer and register. We will contact you with further information.