Tokenization has received a lot of attention from the fast-growing crypto world. It transforms the world of traditional finance through the use of distributed ledger technology.
What Is the Meaning of Tokenization of Assets?
It refers to dividing a physical asset into tradable digital tokens on the immutable blockchain network. All the transactions and account balances will be known to the token holders on a real-time basis. Each token offers a stake in the ownership of an asset to the users. The main benefits of tokenization are higher liquidity, better access, especially for small investors, and can be easily traded in secondary markets and cryptocurrency exchanges.
Any type of assets like real estate, artwork, wine, video games, natural resources, stocks, bonds, and equity shares can be tokenized now. Many blockchain networks like Ethereum, NEO, Waves, and TRON support the tokenization of real-world assets.
The Various Applications of Asset Tokenization
- Non-Fungible Tokens (NFT’s) – These tokens cannot be interchanged or traded with one another. Each NFT has a different value attached to it. It represents both tangible and intangible assets. NFT’s can be in the form of digital sneakers, virtual real estate tokens, and sports cards. Ethereum has two token standards, ERC721 and ERC1155 for developing NFT’s. It has disrupted several industries like music and art. A company named RBW Japan is offering NFT’s for sale on Xeno, a decentralized NFT marketplace located in Hong Kong for fans of K-Pop, the popular South Korean band. An artwork worth $2.2 million made by a graphic designer named Beeple will be tokenized in a virtual music festival, named Metapalooza. NFT’s has also entered the world of gaming Wallem, a game based on augmented reality offers NFT’s for skins and other items for players that can be bought by them using Ethereum-supported tokens. A game related to Formula E based on the concept of NFT will be developed soon by Animoca Brands. In-game ownership is offered to the players and it is retained even if there are hacking attacks or the gaming server crashes.
- Security Tokens – After the era of ICO’s and IEO’s, security tokens emerged in the form of STO’s (Security Token Offerings) that offered a cost-efficient fundraising mechanism for various projects. It provides different advantages like greater participation of investors, financial rights like profit-sharing, cash flow, voting rights, and buyback rights, and quick settlement of funds. Nations like Germany and Singapore have already passed friendly regulations for tokenizing securities. Buyers and sellers can directly strike a deal without the intervention of any middlemen. There are also dedicated platforms like Polymath that issue and manage security tokens for interested investors.
- Synthetic Assets – Synthetic assets refer to the combination of different financial instruments like futures, options, bonds, and derivatives. Platforms like Synthetix and UMA (Universal Market Access) support the creation of these assets. Risks are minimized for the investors through efficient portfolio diversification by providing exposure to a variety of assets. Mirror Protocol, which enables the development of fungible and synthetic assets recently brought access to Synthetic stocks for the users of Binance Smart Chain (BSC). The synthetic assets can also be used as a form of collateral while availing loans and yield farming programs. Users can mint Synths in Synthetix by utilizing cryptos as collateral. The SNX utility token is also offered to investors as an attractive incentive. In 2021, more Synthetic asset projects are predicted to be launched in the DeFi industry posing a heavy challenge to the traditional financial markets.
- Central bank digital currencies (CBDCs) – Many central banks like the Societe Generale, World Bank, Commonwealth Bank of Australia, and the People’s Bank of China are coming out with tokenized securities, bonds, and digital versions of their fiat currencies. It can be used for daily transactions and settlement of funds.
As seen above, Tokenization of Assets will break new records in 2021 and will be used across multiple industries. It helps in easy access to capital. More clarity is needed on the regulations regarding tokenized securities.
It can be never ignored as security tokens provide more liquidity and reduce the expenses involved in fundraising. Scalability in technology is also needed with increased user adoption.
A neutral approach is needed to address issues like settlements, legal considerations, governance, accountability concerns, data protection, and thwarting hacking, and phishing attacks. Distributed ledger technology will lead to huge growth in the token economy and become an integral part of the mainstream economy with time.
VanessaJane is a Blockchain Consultant, been in the Software Development Industry for the last 4+ years. She has a great knowledge of Technology, Blockchain, Real estate tokenization platform Development, etc also she likes to write about the tips, procedures and everything related to the growth of Business.
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