Why Asset Tokenization is Important What are the benefits?
Table of contents
- What is Asset Tokenization?
- What are the Benefits of Asset tokenization?
- What Asset Tokenization can offer?
- Tokenization vs Securitization
- Tokenization vs Fractional Ownership
- Types of Tokens Circulated and Used in Blockchain World.
- Benefits of asset tokenization from an asset owner’s perspective –
- What type of Industries are Accepting Asset Tokenization?
- Regulatory issues
- Asset Tokenization – Process
- What does an Asset Tokenization Platform do?
- Asset Tokenization Features
- What are the Benefits of using an Asset Tokenization Platform?
- The List of Asset Tokenization Platforms-2023
- The Future of Asset Tokenization
What is Asset Tokenization?
Fundamentally, tokenization is the process of converting rights or a unit of asset ownership into a digital token on a blockchain.
Asset tokenization involves representing the ownership rights of real-world assets as digital tokens on a blockchain.
In simple words, it is a process through which a blockchain token is issued to digitally represent any real tradable asset. In a way that you can trade with a single fraction of the asset as well.
The method utilizes smart contracts to manage transfers of digital tokens that represent and verify ownership of assets, offering streamlined transactions, transparency, and high levels of efficiency.
The process sounds much like Securitization and Fractional Ownership. But it holds some key differences. It is something we will cover just before diving deeper into the tokenized world.
What are the Benefits of Asset tokenization?
In the fast-paced world of finance and investments, asset tokenization has emerged as a transformative solution with the potential to reshape traditional markets.
And, the importance of it becomes more apparent amid market uncertainties and changing landscapes.
One of the most significant benefits of asset tokenization lies in its ability to unlock liquidity and democratize investment opportunities.
Additionally, by representing tangible assets, such as real estate or artwork, as digital tokens on blockchain networks, fractional ownership becomes feasible.
Further, this fractionalization allows investors of all sizes to gain exposure to high-value assets that were once exclusive to wealthy individuals and institutional players.
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What Asset Tokenization can offer?
While tangible properties have experienced a substantial surge in value, virtual lands in popular Ethereum Metaverse projects saw a significant drop in prices.
Especially, in such cases, asset tokenization can offer a hedge against market volatility and mitigate risks.
The recent divergence between the real estate and virtual lands markets underscores the advantages of asset tokenization.
Tokenizing real estate, for example, enables asset owners to access a broader pool of potential buyers. Thereby reducing the time it takes to sell and realizing value in a more liquid form.
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Tokenization vs Securitization
When we are talking about how tokenization is different from securitization, the former turns all the real-world assets into high-liquidity digital tokens.
Whereas, the latter converts low-liquidity assets into higher-liquidity security instruments that could be traded in markets and over the counter.
Tokenization vs Fractional Ownership
Fractional ownership, unlike Tokenization, provides an opportunity to bring unrelated parties together to enjoy trading in a digital world.
With the basics of the Tokenization of commodities now clear to you, let’s look into what are the types of tokens operative in the Blockchain environment.
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Types of Tokens Circulated and Used in Blockchain World.
First, to ensure that you get the best perks of investing your efforts into the development of tokenized assets, tokens are broadly divided into two bases.
On the Basis of Nature
This term represents a set of assets that holds some monetary value and is available usually in a physical form.
These digital assets are created such that every token is equivalent to the next. Meaning, one Bitcoin is equal to one Bitcoin and is interchangeable with one Bitcoin only.
They are designed as unique and can not be interchangeable.
On the Basis of Speculation
These tokens represent currencies in digital form.
The term refers to a digital token that is issued to support funding for the development of cryptocurrency.
And it can be later employed for purchasing a particular product or service offered by the issuer of the cryptocurrency.
Security tokens are one of the cryptocurrency trends. It is basically the digital representation of traditional securities.
Now we are familiar with the types of tokenization of assets. Via distributed ledger blockchain technology.
It’s the right time to look into what are the benefits of this process.
Now as we are familiar with the types of tokenization of assets via distributed ledger technology. It’s the right time to look into what are the benefits of this process.
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Benefits of asset tokenization from an asset owner’s perspective –
For example, an individual requires $50,000 tokens out of a condo valued at $500,000. This individual may have tokenized his condo into 500,000 security tokens, each worth 0.0002%.
50,000 tokens might get sold instead of selling the entire property and losing its utility as a livable space, thus ensuring a more liquid asset.
Assets that cannot be liquidated often have an unestablished market price.
In this case, asset owners typically provide buyers with incentives like liquidity discounts, which reduce the asset’s price.
Basically, the tokenization of assets would increase the asset’s liquidity, as it eliminates liquidity discounts.
Moreover, selling small fractions of ownership enables owners to charge a fair market price.
Reduced Management Costs
If you transfer ownership of assets today, it requires lawyers acting as intermediaries to handle the paperwork. As well as create trust between you and a buyer. This results in extra time and cost.
If you choose to tokenize the very same asset and utilize a decentralized platform or marketplace it will automate many parts of this process. Thereby, saving time and cost.
Shorter Lock-up Periods
Chiefly, lock-up periods restrict you from selling your assets. Sometimes, this is due to the asset being large and liquid.
Tokenization of assets has the potential to shorten the lock period. Mainly, due to you being able to sell your tokens easily in a liquid market.
In this scenario, you no longer have to wait for years to take profits or losses.
Since the underlying technology behind asset tokenization, blockchain, is immutable, owners are unable to change an asset’s history to make it appear more attractive.
This allows you to see the history of a holding and more informed decisions.
With ownership and decentralized identity (DID) details kept on the blockchain, a buyer’s private-public key pair forms a digital signature ensuring it’s really them. And this can be used for things like KYC/ AML verification.
Additionally, there are DID identifiers decided upon by standards organizations, such as w3c, ensuring acceptance across many different networks and platforms.
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What type of Industries are Accepting Asset Tokenization?
Tokenization is one of the applications of blockchain in the fintech industry. It is changing the landscape in different ways. Be it margin lending, product structuring, investment, or payments.
Basically, the concept facilitates finance organizations with an opportunity to turn all the assets into digital crypto-currencies exchange seamlessly.
It gives merchants an escape from storing the actual credit card numbers in PoS machines and other machines.
This, as a whole, introduces liquidity in the market and lowers data security breaches.
Likewise, the tokenization of equity shares provides you with more than one token issued for the same credit card.
Meaning, even if you have used any token on an online website. If that portal gets hacked, it won’t be easier to reverse engineer the code and learn the actual credit card number.
A real-world example, of this emerging trend in investment strategies, is AlgoZ’s partnership with OmiseGo.
Real estate is yet another business domain that leverages the higher benefits of the development of tokenized assets.
The concept of real estate tokenization streamlines the investing process. It eliminates the intermediaries, making it easier and cost-effective for buyers and sellers to interact with each other.
It also lets anyone invest any amount, which further results in a better marketplace for all.
Besides, this concept reduces the risk of fraud. When talking about real estate tokenization, there are various platforms offering exceptional services in this direction. Some of them are Harbor, Slice, and Meridio.
The healthcare sector is also turning towards the idea of tokenization. Basically, to settle down some major challenges prevailing these days.
It replaces sensitive patient data like PANs, NPPI, and ePHI with unique and non-sensitive values, which reduces data breach cases.
It also transfers the power to create, access, and share sensitive data from the intermediaries. Like insurance companies to patients and medical organizations.
And in this way, the tokenization of healthcare processes and information empowers patients to validate the accuracy of their data. While saving a heavy amount offered to these third parties.
Clincoin is a perfect example of understanding the scope of tokenization and token economy in the healthcare domain.
This Block-based platform, besides connecting users, providers, and developers, pays rewards to you for engaging in healthy activities.
You can then use these tokens to buy digital tools, products, and services in a decentralized marketplace.
Another industry that experiences significant positive changes with the emergence of asset tokenization is the Sports Industry.
Asset tokenization on blockchain platforms decentralizes the whole marketplace, making it easier for you and your fans to invest in your favorite sports players and clubs to trade the gained benefits.
This further helps sports clubs and players to meet their financial needs and perform in this field more effectively and profitably.
Various sports clubs and firms have already started looking into this direction. While many are planning to embrace the concept. And one such example is the recent Manchester City and Superbloke partnership.
Enterprises also harness the potential of tokenization of real-world assets in their monumental shift to Blockchain.
They consider this concept to extend their approach to new markets, and evaluate employee performance.
Ensure proper resource allocation, and introduce better incentive models. As well as add transparency to all the internal processes.
Additionally, Enterprises introduce different tokens for different assignment types to give a tailored experience.
They set an award for a particular amount of tokens which helps in showing their importance in concrete terms.
Something, that is beyond the scope of labels ‘high-priority ‘and ‘urgent’ which product managers were using earlier.
Chiefly, Blockchain can make art more accessible not only to art lovers but to artists as well. Because they can now tokenize their works and sell them around the world without intermediaries..
The concept of management of tokenized assets will enter many more business verticals.
Most of the obstacles to asset tokenization are related to regulatory issues and current technology constraints. Blockchain has borderless nature and offers several opportunities for businesses and individuals.
Regulators, politicians, and even developers need to begin work on defining the legal framework and drafting global laws and regulations. for tokenized assets and the activities associated with them.
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Asset Tokenization – Process
a.Selection of asset
b.Evaluation and pricing of an asset
c. It provides you fund management dashboard with verification.
d. Token offering through a Tokenized Assets Offering (TAO) for you to purchase. Smart contracts built into the asset tokenization process automate regulatory compliance, eliminating the need for intermediaries such as transfer agents. These offerings are known as Security Token Offerings.
What does an Asset Tokenization Platform do?
Asset tokenization platforms convert real-world assets into digital assets. Using blockchain technology and smart contracts, any asset can be tokenized. It may be, physical property, intellectual property, or creative property. This creates liquidity for all types of assets on a global scale.
Asset Tokenization Features
Asset tokenization platforms possess most or all of these features.
b.Produces legally compliant digital tokens representing real-world assets.
c. Built-in smart contracts
d. Issuer/Investor fund management dashboard
e. Investor verification
f. Global KYC
i. Investor voting rights
j. Assist with evaluation and pricing of assets
k. Token Asset Offering/Security Token Offering
l. Regulatory compliance
j. Token lifecycle management (issue, withdrawal from circulation)
k. Security management
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What are the Benefits of using an Asset Tokenization Platform?
Tokenization creates liquidity for illiquid assets, unlocking their value.
Expands Investment Base
Fractionalizing ownership of assets, lowers the minimum investment threshold, allowing smaller investors to invest in assets previously considered not practical due to the high price of investment.
Tokens can be used for global transactions and borderless trading.
Reduction of trading spread charges, elimination of middlemen, and less expensive transaction costs.
24/7 market availability
The List of Asset Tokenization Platforms-2023
Asset Tokenization platforms convert real-world assets into digital tokens. The process is referred to as Tokenization as a Service (TaaS).
Basically, asset tokenization platforms are used by financial institutions and institutional investors.
- PixelPlex – It enables you to run security offerings and access innovative investment opportunities.
- Konkrete– It is an asset tokenization solution developed by founders Konkrete.io and PoenDAO in Melbourne.
- Polymath– It aims to create, issue, and manage tokens on the blockchain. Over 200 tokens have been deployed using the Ethereum-based solution.
- Tokensoft– It is a technology and security platform for companies seeking to issue assets on the blockchain.
- Treum- A ConsenSys company, is a blockchain-based platform that helps businesses build trust with their customers. It aims to bring transparency, and traceability, to supply chains, using blockchain technology.
- Toko– It is an enterprise-grade tokenization platform giving asset owners the power to tokenize assets that are traditionally liquid and make them investable.
- Omni Layer – It is an open source fully decentralized asset platform on the Bitcoin Blockchain. It is a platform for creating and trading custom digital assets and currencies.
- Stobox– It provides technology and consulting to help clients leverage digital assets and tokenized securities.
- Securitize – It is a compliance platform and protocol for issuing and managing digital securities on the blockchain, including dividends, distributions, and share buy-stocks.
- Taurus Platform- The platform enables financial institutions to issue/onboard, manage, and book “any type” of tokenized securities and digital currencies.
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The Future of Asset Tokenization
Chiefly, tokenization is poised to transform asset management as we know it today.
It democratizes access to markets while ensuring fairness and security.
The only obstacle today is legal boundaries. And to what extent a hurdle stands in the way depends on the type of asset you want to tokenize.
Creating a legal bridge between assets and distributed ledger technology needs legal professionals. Especially, to solve tax-related and cross-jurisdictional issues.
Nevertheless, new solutions will come into the market which will iron out these concerns in the years to come.
For investors, users, and creators it comes up with better facilities in terms of the exchange of tokens.
In the process of tokenization of assets, a real-world asset like gold, property, or money is converted into digital tokens such that one can perform actions on a fraction of real-world assets as well.
It offers increased crowdfunding, low barriers to market entry, enhanced liquidity in the processes, and better employee management.
It offers several benefits such as enhanced liquidity of assets, reduced entry-level barriers, attracting new investors, lower risks thank to better market transparency, and more.
These platforms enable individuals and organizations to create digital proof of ownership for real-world liquid assets such as capital or property. These asset-backed tokens differ from security tokens in that they carry real-world capital and liquid value.
ConsenSys Codefi is a must-consider option, especially given its functionality. In essence, it provides a complete set of blockchain applications designed specifically for business clients.