This is our second article on the explanation of tokenization phenomena. If you are here, that means you are interested. Thank you very much and let’s continue!
As we said before, assets tokenization became a steady trend of 2018 and will surely continue to be onward and upward in 2019 and beyond. It is reshaping the regard of investors assets, holding forms and terms.
Also, as we discussed it previously, the recent rapid development of decentralized technologies and general digitizing are the main driving forces behind this modern trend. From that on, non-liquid assets (such as real estate, precious metals, pieces of art, brand power or goodwill) are getting to be involved in high-speed market operations more often and much easier. This is a new cost-effective way to turn anything of real value into marketable security by creating its digital unit of ownership (also known as a security token).
Tokenization of real assets is supposed to bring its wide set of benefits, including higher liquidity, transparency, rapid settlement of deals, remove of intermediaries, immediate transfer of ownership, trading deals around-the-clock, improved compliance and added value of deals on smart contracts. Sure, all these positive changes won’t happen over one night, but in this article, we are about to name several types of traditional assets which are most likely to be tokenized. With some reasoning.
The present framework of commodities exchange experiences various cost adding issues. They are not only geopolitical but also include an absence of trust to brokers who regularly charge high expenses, the necessity of USD/EUR settlement in developing markets; paper-based record-keeping in developing markets, which expands the odds of mistakes and misrepresentation and the absence of moderate access to inventory network financing for product makers and so on.
While many different approaches and projects are tended to give advantages to proprietors and investors and decrease possible inefficiencies of storing and transportation, blockchain based tokenization of wares and commodities would profit members at pretty much every dimension of the supply chain. Moreover, it supports their financing and hedging.
Pieces of art and luxury cars.
Before, wealthy investors have solely claimed these benefits. With an initial investment for these types of assets being huge, markets of luxuries were pretty much unmanageable and non-liquid.
However, with the development of a blockchain tech, many projects are aimed to change this pattern and introduce a concept of fractional ownership.
With this kind of fractional possession, fees are also much lower than with traditional art investment. This allows investors of all scales to enter the market and collectors to get alternatives to existing art-secured financing models (who might be too expensive, have long terms etc.) In case of high price vehicles, it would benefit auto enthusiasts as well as investors looking for diversification of their portfolios. Clients can purchase and exchange tokens of exotic autos without intermediaries being dealers themselves.
Even if you have to give some piece of your mind to legal issue here, nevertheless, tokenizing real estate still makes sense. Removal of dealers and brokers cuts fees and thus enables smaller investors to participate.
Moreover, by circumventing current issuance infrastructure such as banks, they enable even more people — the unbanked — to invest in real estate. Likewise, counterparty risk is removed through quicker settlements and event-based payments (based on smart contracts), fractional ownership is possible and the digitally tradable tokens make selling/buying far very efficient.
Clients can purchase property tokens, acquire pays, and then at that point, as with traditional real estate investments, sell their “shares” at higher prices depending on the appreciated values of the underlying property. Asset owners will discover expanded liquidity and fairly long capital lock-ins from fiat and digital currency investors.
When we think about precious metals, it is always something that has been opaque, illiquid, and prohibitively expensive to own. However, even being that costly, was safe and secure trade of diamonds, gold or silver possible before?
We can say for sure, these markets always had enough: enough of willing investors, enough of trading volumes, enough of people’s appreciation of their value reliability. But never enough of transparency.
There is a need for an easier, more secure and immutable ways for precious metals trade and tracking. By issuing out digitized tokens, nowadays it is possible to guarantee secure fractional ownership along with greater transparency in an asset class.
Traditional financial assets.
The world of traditional finance offers security, insurance, venture funds, debts and a proven system for investors and traders to participate and grow their funds. But this system has many limitations. Meanwhile, the blockchain and tokenization can offer nearly boundless potential, more freedom and new models of gaining profits.
When people invest in a traditional asset like a stock, for example, they are essentially buying part of the underlying company that offers it. With that can come certain voting rights, dividends and an assurance that the asset’s value is tied to the success of that company. However, these asset types are famous for their illiquidity: investors usually have long venture terms and should normally hold up 5 to 10 years before getting their paybacks.
Tokenized securities seem like the logical solution to pair the best of blockchain technology with the proven and effective traditional financial system. Tokenization promises to democratize and open up investment to new parties, and unlike many cryptocurrencies, it has the security of having real-world assets behind them.
Creative FundraisingTokenizing assets can help simplify fundraising, especially for startups, small businesses, or non-traditional, innovative enterprises. Companies can sell tokens as if they are stock interests, but most of the rules and regulations associated with other types of fundraising generally do not apply.
As a result, fledgling companies and those with few resources do not have to hire the various experts traditionally required for venture capital, initial public offerings, and other types of fundraising attempts. Given that the burdensome documentation — such as securities filings and other related paperwork — is not required, the whole fundraising process can be conducted faster and cheaper.
In addition to the most obvious benefits from the transition to a digital domain — increased speed, security, and convenience of operations, as well as less need for intermediaries — tokenization brings unexpected results.
Among them is the addition of properties of assets that are not initially inherent: the opportunity to divide assets into the smallest fractions, the ability to prove the history of ownership as well as ability to integrate principles of management into the asset itself. For example, suppose there are several partners in a real estate developer who need to vote on a proposed renovation. With a wallet that holds their tokenized property, they can take the vote more efficiently, without having to meet face-to-face or trust a proxy to represent their wishes.
All these things will make a tokenized asset more valuable than a non-tokenized with the same fundamentals.