Asset tokenization means converting the ownership rights to real-world assets into digital tokens on a blockchain or distributed ledger.
More about tokenization of RWA real world assets.
Asset tokenization means each token represents a unit of ownership in the underlying asset.
Asset tokenization allows for what is called Fractional Ownership and allows fractional ownership interest, broader distribution, and increased liquidity.
Asset tokenization is a technology innovation utilizing digital ledger technology which enables the tokenization of securities offerings to access multiple liquidity pools, better data about their asset, and many other inherent benefits.
This process offers benefits such as increased accessibility to traditionally illiquid assets, enhanced transparency, and potential cost savings by reducing intermediaries.
With a 50x increase predicted between 2022 and 2030, from $310 billion to $16.1 trillion, tokenized assets are expected to make up 10% of global GDP by the end of the decade.
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Example: St. Regis Hotel in Colorado.
- This is a luxury resort. Its ownership was tokenized to 20 million tokens, each token representing a unit or fraction of ownership in the hotel, which gives the token owner a share of profits, tax deductions like depreciation, and appreciation in the property.
- These benefits are distributed quarterly to the owner of record. These tokens can be resold on a secondary market to qualified or unqualified investors, in accordance with the terms of the token creation methodology.
- This means that someone can invest 1000 dollars in this property and earn both profits, tax deductions like depreciation and a return on their investment as the property appreciates in value.
Tangential thinking
- While the focus maybe on this tokenization process allowing smaller investors access to larger real estate investments like 20 million dollar properties, which they could be involved in before, it should not be ignored that tokenization also benefits the larger investor, who can invest 100,000 in St. Regis, while investing 100,000 dollars in nine other properties. - So, the larger investor benefits from diversification of their investment funds, thus reducing risk and statistically increasing their rate of return through diversification, which is made possible by tokenization.
What Can Be Tokenized?
Financial Securities: Equity, Bonds, Options, Derivatives, Hybrid Financial Assets
Intellectual Property: Patents, Copyrights, Trademarks, Trade Secrets.
Physical Property: Fleet, Equipment, Luxury Goods (Cars, Designer Apparel, Accessories)
Real Estate: Residential, Commercial, Industrial Property, as well as raw land.
Commodities: Energy, Precious Metals and Stones, Agricultural Products.
Art & Collectibles: Antiques, Coins, Stamps, Books, Firearms, Sports Memorabilia.
Carbon Offsets & Credits: Carbon-based assets for emerging economy.
Tax Credits: Federal, state, and local tax credits to trade in markets.
Loyalty Points: Club membership interests and loyalty points
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What Are the Benefits of Tokenization?
Fractional Asset Ownership: A digital token can be created for a fractional portion of an asset. This enables shared ownership of an asset and partial asset trading.
Peer-to-Peer Asset Trading: The ownership of tokenized assets can be transferred directly between asset owners and investors without the involvement of third-party intermediaries, such as governmental entities or financial institutions.
End-to-End Asset Traceability: Asset owners and investors can trace the whole history of activities performed over tokenized assets in a distributed ledger. It helps verify asset origin and provenance and prevent fraud and counterfeiting.
Regulatory Compliance: Tokenized assets can be programmed to comply with AML/KYC, ISO 27001/27002, SEC, GLBA, PCI DSS, GDPR (for the EU), HIPAA (for healthcare), and other required regulations.
Smart Contract-based Automation: Smart contracts automatically enforce fixed actions related to tokenized assets upon particular events pre-defined by token issuers. For example, asset ownership is transferred to the investor upon payment for the asset.
Automated Recordkeeping: All transactions on tokenized assets, including those initiated by smart contracts, are automatically validated, timestamped, cryptographically encrypted, and recorded in the immutable ledger available to asset owners and investors.
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What is the goal of asset tokenization
- Tokenize your real world assets and securities as digital, programmable instruments for primary offerings and secondary market trading.
What are the costs of tokenization?
The cost is variable and dependent on several things, including the following factors :
The type of assets to tokenize.
The type of a token required for the asset or purpose.
The blockchain platform you choose for the tokenization of assets.
The number and complexity of smart contracts.
Cross-chain interoperability requirements for digital tokens.
The number and complexity of applications (web, mobile, desktop) for token issuers and investors to manage their assets.
The type of an asset management solution (a custom or a third-party crypto wallet).
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Asset Tokenization was predicted to be one of the biggest contributions of digital ledger technology to cryptocurrency.
- I think there is a very good chance that between some select cryptocurrencies accruing great value like Bitcoin, Ether, Tether and XRP, the biggest value will be liquifying trillions of dollars of illiquid assets like real estate, art and collectibles.
- A business which taps into this will share in the market, and as many who realize this is an abundance economy situation. There will be enough wealth for all competitors to do well financially.
About the author @shortsegments
- @shortsegmentments is a writer focused on cryptocurrency, the blockchain, non-fungible digital tokens or NFTs, Stablecoins, Digital dollars, Bitcoin, Etheteum, and decentralized finance for over five years.
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