The finance industry
is witnessing a drastic transformation. The tokenization of physical assets is keeping pace with the advancement of blockchain technology. This tokenization processholds several benefits compared to traditionalinvestments and securities.Tokenization of assets is set to revolutionize the capital markets.
Central banks worldwidehave embarked on several CBDC projects. Digital financialbusiness models are extending to physical and sustainable assets represented by tokens on a blockchain, unlocking trillions of dollars and creating high revenue streams. The advent of tokenization has fundamentally changed how investors invest and raise funds. Do you want to know how asset tokenization has turned its stream
into a digital one? This article highlights the digitalization of tokenization and the ways it will churn out in the future of the finance industry.
Tokenization—The Main Benefits
“Asinvestors are now able to tokenize physical assets by using blockchain technology, they can add liquidity to sections that have been far underserved by the capital sector. The interesting part of tokenization is that we are driving it todemocratize certain aspects of economic activities. It is worth mentioning that a blockchain-based token will always be able to transact more than an ordinary share or stake in an asset.”
Tom Fuerstner, founder and CTO of RIDDLE&CODE
Tokenization aids in unlocking liquidity from an illiquid asset physically. The high price of assets like real estate, gold, or art pieces tends to make them inaccessible. Therefore, tokenization enables buying and selling a fraction of an asset. As a result, illiquid assets would allow investors to unlock the asset’s potential liquidity and trade on the same through the percentage of fractional ownership. Awide range of investors can participate in the same way.
Access to Real-Time Transparency
These assets enable improved and real-time transparency with absolute ownership of a tokenized asset. Each asset and its counterpart are documented on a shared asset tokenization platform containing detailed information on activities performed on an asset. The blockchain technology-based platform ensures that the dedicated investor gets a transparent view of the updated information ownership records.
Offers Minimum Investment Amount
In the traditional financial landscape, investment options had significant barriers. Back then, the amount of investment required to buy even a single real estate asset was extremely high. However, with the tokenization process, it has become possible for investors to claim investments at a minimum amount. In this way, these days, asset tokenization has made it possible for even small investors to diversify their portfolios and get into markets that were previously only open to big investors.
Digital Asset Tokenization Market Will Completely Change the Traditional Stock Market
Today, all forms of assets can be tokenized – physical, digital, and even virtual. According to research by the World Economic Forum (WEF) and Deloitte, a substantial part of the world’s economy will be driven by asset tokenization, whichincludes both physical and digital assets. It also states that the growth will happen with the rising use of blockchain technology by financial businesses
. So, by 2025, the development will be worth more than $176 billion, and by 2030, it will be worth more than $3.1 trillion.
LAToken,a leading blockchain and token services provider in the U.S., enables investors to invest in crypto using blockchain technology easily and boostsblockchain asset tokenization. LATokenis not the only token service provider. Numerous emerging asset tokenization companiesare leveraging this technology along with security token offerings (STO) to raise money backed by blockchain. The ease of transferring tokens with the help of the blockchain platformwill make the traditional stock exchanges obsolete.This will save money on transactions.
Cryptocurrency encourages security tokens and provides funds and stocks with additional security over blockchain technology. In fact, crypto induces transparency, efficiency, and the most crucial liquidity of assets. Today, cryptocurrency proves to be a much better way of investing and funding than traditional methods.
Why is the Tokenization of Assets Becoming Essential?
The introduction of asset tokenization has been fraught with many risks related to technology, such as scalability, cyber risks, hacking risks, and business risks. Also, there have been problems with governance because it can be hard to figure out who owns an asset, stock, or bond.
These challenges gave rise to the legal status of tokens over blockchain technology to define and implement a transparent legal framework of traded assets. This, in turn, is also bringing opportunities in the finance market
and promoting the growth of the new blockchain industry.
Many companies are working on tokenizing assets and reinventing a new type of system called central bank digital currencies. The U.S. is alreadymoving to beginitsnative nationwide digital assets program. In the list, IBM has notably executed a successful asset tokenization platformin partnership with Pacific International Lines to track a 28-ton shipment of mandarin orangeson the IBM Blockchain in 2019. However, there are many other successful programs around the world that make tokenization of assets legal, make them safe, and build a secure and easy way to use financial services in the future.
What Does it Hold for The Future?
The aspects and benefits of tokenization outlined are ideal for assets such as real estate
, gold, the fine arts sector, and virtual assets like securities, of course. However, the valuation of these assets is increasing as an investment for profitable returns.
According to a report by the World Economic Forum, the predicted growth of the future economy will focus onbusinesses dealing with blockchain to tokenize assets. By 2025 blockchain is expected to raise the value of tokens by$178 billion. Interestingly, blockchain technology will provide enterprises worldwide with more than $3.2 trillion by 2030.
Therefore, it would not be wrong to say that the process of tokenization is still at an early stage. However, it certainly has the potential to bring dynamic changes and opportunities for investors and owners of assets in the future.
“Possibly, the most promising use cases for tokenization greatly lie in the future of finance world, as there’s a lot of potential for digitization and automation. And that a bigger part of tokenization will enable trading in a very cost-efficient manner if a digital version of the currenciesis made available by the financial system.”
Claus Skaaning, CEO at DigiShares
Frequently Asked Questions
What is tokenized investment?
Tokenized investmentsaremade to secure traded and non-traded assets over blockchain technology. A tokenized investment enables faster settlements of assets at lower costs and reduces trading risks.
What assets can be tokenized?
The assets such as real estate, commodities, physical goods, fine arts, and private equity shares can be tokenized with high capital returns.
How do tokenized assets work?
Tokenized assets work digitally on a distributed ledger or blockchain by having fractional ownership. If you buy a token for a single asset, it means you have 0.0002% of its ownership. And if you want 100% ownership of that property, you have to buy tokens according to the value of the property.