Asset tokenization mainly refers to the process by which digital tokens that represent real world assets (e.g. real estate) are created on a blockchain. This enables the real world asset to be ‘tokenized’ or exist in a digital form. Since it’s on a blockchain, transactions will be more efficient and secure.
Digital assets can also be tokenized. The most well known digital tokenized assets are cryptocurrencies; the space has evolved to include physical goods and properties. Even traditional financial assets like stocks and bonds.
Tokenization makes assets easier to trade which will help in providing more liquidity. More liquidity stabilizes the price and makes it easier to buy and sell in large volumes.
In this post, I'll cover some of the benefits of asset tokenization.
Lower Cost And Quick Settlement
Issues always tend to arise when assets change owners. This is because there isn’t a unified and standard way to track them, one party might use a method that’s quite different from the other party. The settlement takes time and can range from a few days to a few weeks.With blockchain technology, there can be a unified common way to track the process and quickly reach a settlement that will appeal to both sides. Also, it will cost a lot less because there are few to no intermediaries. Recently, a relative of mine had to pay a hefty fee just to change the name of the owner on a property asset. It’s been almost two weeks and he still hasn’t received the new documents. The old system is so clunky and outdated.
Few to No Intermidiaries
Banks are the biggest financial intermediaries. Anytime a transaction happens they receive a cut for providing the means that enabled the transaction. Too bad for them because better means are now available.It’s not new that robots will replace the workforces in different industries but did you know that blockchain takes that to another level? Blockchain will replace entire sectors and industries.
Another benefit of asset tokenization is that it reduces (and sometimes eliminates) intermediaries. In Peer to Peer (P2P) asset trading, the buyer is linked directly to the seller and vice versa. There are no intermediaries involved.
A Broad Investor Base
Tokenizing an asset opens up its ‘accessibility pool’ to a wider audience. Many more people are able to invest in the asset. Just look at cryptocurrencies, Bitcoin is dubbed the digital gold. It may not be possible for many people to buy 0.005 of (physical) gold but it’s very possible to buy that amount in digital gold (Bitcoin). More people are able to acquire digital gold than physical gold.A broad investor base will enable funding to good performing assets that couldn't get the attention of 'big' investors. On the other hand, it is an opportunity to small and medium size investors to invest in assets that would have otherwise been near impossible to invest in.
Some of the notable asset tokenization companies making in roads in this space are Polymath which creates, issues and manages digital tokens on a blockchain, Swarm focuses on private equity, tokenizing real-world assets and making them globally accessible to all types km investors and Brickken which is a blockchain-based tokenization platform that tokenizes businesses and assets, providing investors with the opportunity to earn passive income.
Conclusion
Asset tokenization is still fairly new and in its early stages. However, it continues to gather interest amongst businesses and individuals simply because of the possiblities it unlocks.Due to the benefits mentioned above, it is expected to gain significant attention in the coming years. Bringing new and better ways to create, own and manage digital tokens.
Thanks for reading!
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