Asset Tokenization: 5 Main Benefits of Tokenizing Real-World Assets
Updated: Dec 3, 2022
The application of Blockchain technology has advanced and is still extending far beyond its initial proposition. With Blockchain expectations getting surmounted daily, You have probably wondered if technology can ever breach the looming gap between digital and physical assets. Well, the gap is not just getting interfaced; it's, as I'd like to say, 'getting harmonized'.
Every day, new paradigms get continually built around the Blockchain. For instance, most industries are starting to embrace the enormous potential of the token economy. This new adoption has dramatically altered the dynamics of investments in the financial market, laden with centralized and illiquid investments worth trillions of dollars, with slim and elusive chances of democratization. In other words, retail investors have the only option of investing in debt or equity markets, both volatile and risky.
Blockchain, through its distributed ledger, decentralized and immutable features, has enabled the tokenization of assets to combat the precarious nature of financial investments.
This Blockchain-enabled innovation would see steep assets or properties broken down into smaller acquirable units, encouraging a fairer market. To explicitly demonstrate how this innovation would create an enabling environment for anyone (even with meager amounts in the capital), I would provide a detailed overview of 'Asset Tokenization' and its decisive impact on investments.
And that spawns the pending question, 'What is the asset tokenization?'
Asset Tokenization Defined
Asset tokenization is digitizing physical and intangible assets to effectively break them down into smaller, achievable units called tokens.
These tokens, also known as security tokens, denote proportional units of the digitized asset, which can list for sale. Blockchain exploits its ubiquity when listed by letting anyone acquire these fractionalized tokens irrespective of location.
The most interesting fact about tokenized assets is that the procurer of any asset-backed token automatically shares proprietorship with the asset's original owner. Depending on the agreement, these ownership rights often have some perks. Like every other investment, asset-backed tokens appreciate concurrently with their underlying asset. In other words, as the asset appreciates, the token does the same.
To illustrate, imagine you own a condo worth a hundred thousand dollars. You can decide to dissect your building into many facets so that your already digitized asset would comprise 100 tokens, with each token worth as little as a thousand dollars - compared to the actual fee. With this small entry ticket, anyone can automatically access this property once they purchase one of the tokens, creating a highly liquid decentralized market. Progressively, profits and revenues generated from this property would proportionally get distributed among the token holders.
The disruptive traits of Blockchain technology have consummated such new iterations as seen in asset tokenization, which continues to create a wide range of benefits.
Let's get a detailed insight into the benefits…
Benefits of Asset Tokenization
Increased Efficiency: The precedence of Blockchain technology in this innovation helps remove the need for third-party interference and contingencies. Circumventing the plights of intermediaries through automation expedites the entire transaction process and significantly reduces transaction costs. Furthermore, due to the immutability trait of the Blockchain, personal data continues to be protected and tamper-proof.
Improved Liquidity: Tokenization tends to open any asset to global investment. By allowing the fractioning of any asset into smaller acquirable parts, asset-backed tokens provide a stargate to trading previously illiquid assets. Real estate tokenization companies are helping a wider range of people - who never envisaged the possibility - invest and acquire properties in the real estate industry.
Shared Economy: An investor or token-holder would always have a share in the revenue generated from the asset model, be it rented, leased, or outrightly sold. Or, token-holders can decide to luxuriate in their property by sharing the use of the asset within themselves. For example, token-holders of a beach house might decide to spend their downtime or vacation in the house - another way of espousing a shared economy.
Blockchain Efficiency: Since Blockchain is the underlying technology, this innovation also promises Blockchain's inherent benefits. These benefits include; security, transparency (visibility and traceability), interoperability, immutability, and decentralized structure.
Facilitated Innovation: Fractionalized real estate, liquid revenue share agreements, dynamic ETFs, and other previously unmanageable offerings can benefit from using programmable contracts and shared ledgers in asset tokenization.
As new solutions and innovations continue to plunge into the financial market, Asset tokenization has categorically gravitated toward creating a legal bridge between assets and distributed ledger technology. This revolutionary innovation is poised to restructure the metrics of asset management.
By democratizing access to assets, I would say the presence of various asset-token media and asset–token companies have contributed to a reasonable new financial alternative that conveniently consolidates digital liquidity with hard asset values.
As asset-backed tokens continue to gain traction, Do you think asset tokenization is an improved alternative to the current financial landscape built around traditional assets?
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