Asset Tokenization: An Emerging Trend for Investment in 2020

Asset tokenization gained rapid momentum in the year 2019. While the space of trading assets and commodities has been taking off, integrating blockchain into this equation, entirely changed its pace and dimension.

Fundamentally, the tokenization of assets represents converting a real-world asset into its digital equivalent. The digital real-world asset is exemplified in the form of tokens on blockchain technology. The token function enables higher liquidity, flexibility, and transparency while removing the intermediaries from the asset management process.

Asset Tokenization Trends

Assets tokenization ensures that a physical piece can be divided into smaller parts, that can be further traded as security tokens on a blockchain platform. The possibilities of the blockchain-enabled tokenization, by converting physical assets and commodities into security tokens, are limitless.

Firms have already started realizing this potential. According to an analysis of a report, in 2018 the figures of STO’s grew exponentially raising $442 million dollars.

The World Economic Forum predicts that 10% of the global GDP will be stored on blockchain by 2027. Taking this as a tipping point, a digital asset banking firm conducted research on the impact of asset tokenization for the upcoming years. According to this research, the market of globalized tokenization on the blockchain is expected to reach $24 trillion by 2027. Note that it includes only financial assets.

Which Assets Can be Tokenized?

The assets are divided into 3 classes that can be further tokenized on the blockchain

• Intangible Assets- This type of assets exist due to operational law and does not exist in physical form. Examples include- patents, copyrights, company shares, etc
• Fungible Assets- These assets include the ones that can be replaced by another identical item. Examples include- metals, grains, etc.
• Non-Fungible Assets- The physical assets, which cannot be divided on-field but it is possible to divide them digitally via tokenization. Examples include real estate property, art, etc.

Hence effectively, everything from real estate properties to exotic cars, from equities and bonds to commodities like diamonds can be converted to security tokens on a blockchain platform.

Now, let’s look at different examples from each asset class and how they can be tokenized on a blockchain platform.

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Stablecoins and Company Shares

The most simplified application of tokenizing financial assets is a stable coin. They are pegged to fiat currencies like the US dollar, Euro, etc. Stablecoins represent an equivalent fiat amount in the issuer’s bank account. Stablecoins backed by blockchain technology provides a much faster, secure, and easy way to process financial transactions.

Individual shares of prominent companies have premium prices. Tokenization allows an investor to buy a part of the company’s share. This allows a wider audience to get a piece of the share while simultaneously exposing the company to a broader audience.

Precious Metals

Tokenizing precious metals like gold or diamond allows better transparency in an inherently opaque and vague system. Further, it also creates new models of fractional ownership.

Digital tokens, each representing a specific gram of gold, can be raised on a blockchain. These tokens can be further traded on a peer to peer platform inducing higher liquidity and greater transparency. Users can also convert the tokens to fiat currency or other metals, say diamond.

Real Estate

Perhaps real estate is one of the industries that can enjoy direct benefits from tokenizing properties. It is nearly impossible to divide parts of physical property. Until now.

Tokenization allows an on-field real estate property to be divided into identical parts. Adding on top of this, these equivalent parts can be represented by tokens which can be further traded on a peer to peer platform. For the first time, it ensures the possibility of fractional ownership in a real estate market. Moreover, the property remains unbound to geographical locations, time, and class. Overall, it allows a broader audience base to participate in what has been a highly inclusive industry until now.

Carbon Credits

Blockchain facilitates the opportunity to tokenize an asset as intangible as carbon credits. Carbon credits are an effective way to mitigate the greenhouse gas emissions that an individual or a company generates. Though a novel concept, it is difficult to keep a track of carbon credits such that it amounts to zero greenhouse gas emissions.

Now, tokenization provides an efficient way to generate security tokens representing an individual’s carbon credits. These credits can further be used for carbon offsetting, meaning for activities, like reforestation, which reduces greenhouse gas emissions. Tokenization facilitates an unconventional way to monitor carbon credits on a transparent ledger so as to ensure that equivalent actions are taken to protect the environment.

Conclusion

Startups in blockchain are grappled with the way security tokens can be used for different use cases to solve existing issues and enforce innovative solutions to seemingly impossible concerns. The trends of tokenization have also drawn the attention of investors. Moreover, tokenization will enable a system that is more inclusive, transparent, efficient, and fair. 

AuthorBio

Natalie is a content manager at  #1 Tokenized Real Estate Platform, Cocoricos. She consults various blockchain projects and writes white papers for VCs, IEOs, and ICOs.