Tokenization is the process of issuing blockchain tokens- security tokens in particular- that digitally represent real tradable assets. It can be likened to the traditional process of securitization, with a modern twist. Asset-backed tokens (ABTs) are created via a form of initial coin offering (ICO) commonly known as a security token offering (STO) to distinguish them from other tokens.
An STO is used to create a digital representation- a security token- of an asset, implying that a security token could represent a share in a firm, ownership of a property, or participation in an investment fund. ABTs can be traded on a secondary market, like the Tokenizer Exchange.
The benefits of tokenization
Tokenization has the potential for a more effective and fair financial world 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. The access to a large pool of traders increases the liquidity, benefiting investors who enjoy more freedom of selling their investments anytime.
Importantly, tokenization opens up asset investment to a larger pool of investors by reducing entry barriers. ABTs are highly divisible, meaning people can buy tokens that represent incredibly small portions of the underlying assets.
Since the issuing and trading of assets are cheaper and easier, tokenization creates a way for a great reduction of minimum investment amounts. Furthermore, the higher liquidity of ABTs could also condense the minimum investment periods as investors can trade their tokens on secondary markets, which is theoretically global and 24/7.
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 are automated. The automation reduces the administrative burden involved in token trading, with fewer or no intermediary involved, leading to not only faster transaction execution, but also cost-effective charges involved.
Tokenization enables the creation of a new financial model- one that is more democratic, efficient, and faster than the traditional financial system. Tokenization of assets, such as real estate, art, sports, bonds, equity, commodities, venture capital, private equity, FX and derivatives, metals and commodities, energy, luxury products, wine, and many more, is already a reality. New market entrants are rapidly building their infrastructure, while the traditional market infrastructures are also showing signs of paving way for mainstream adoption.
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 in Tokenizer by visiting opening an account here. If you want to invest in security tokens, contact us by creating an account here, 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.