Tokenization is another trend that has been produced in the blockchain world, but many still don’t know what it involves. Is it truly possible to tokenize everything around us? Many industries have already started maximizing the potential of asset tokenization, such as finance, real estate, sports, arts, ecology, entertainment, etc.
So, let’s take a deeper look into tokens and asset tokenization to see why all businesses should be aware of its benefits and start making the most of it before their competitors win their customers over and it’s too late to hop on the asset tokenization train.
Asset-supported tokens are digital claims on physical assets, which are also backed by that particular asset. Whether it is crude oil, gold, real estate, equity, or any other physical asset, it can easily be tokenized and converted into an asset-backed token. The most use cases of these tokens we see in agriculture, real estate, and land registration, but the majority of industries, as well as individuals, have already started making the most of them.
When it comes to land registration, the implementation of a blockchain-supported land registry might allow the ownership documents to be recorded and assigned to the user account of the owner. Also, if structural changes occur, they can easily be added to the blockchain and in cases of the property being sold, all the relevant information will be transferred to the new building owner.
When talking about token types, three that currently exist are utility tokens, security tokens, and non-fungible tokens. Utility tokens are crypto tokens serving use cases within a certain ecosystem. They allow users to perform certain actions on a certain network while being completely unique to its ecosystem.
Among security tokens, the most interesting part for businesses is the security token offering or STO. It involves the combination of blockchain technology with regulated securities market requirements to provide support to asset liquidity and the wider availability of finance. Usually, STOs are the issuance of digital tokens, but in a regulated security form.
Lastly, there are non-fungible tokens, which are probably the most popular token type at the moment. Non-fungible tokens are digital assets stored on the blockchain that can be sold, bought, and traded, but are completely interchangeable. They are increasingly being used by digital artists who are creating their digital work and selling it on NFT marketplaces.
Asset tokenization is the term referring to the process of digitizing both tangible and intangible assets and converting them into tokens. Once the owner tokenizes its asset, it can store and trade them in fractions or completely, but also transfer them to another owner. With asset tokenization, security token offerings and blockchain technology are often mentioned side by side. The reason for that is in blockchain technology, which allows creating and storing tokens and choosing a certain STO platform to digitize the asset. These three elements are a part of a unique process we call asset tokenization.
As the trend of asset tokenization is expanding across different industries and business areas, many asset owners and investors are detecting new opportunities. Some even predict that asset tokenization will revolutionize the finance world as Bitcoin did ten years ago – and continues.
Why Asset Tokenization?
Digitalization is not new, but asset tokenization brings blockchain technology to the mix, and this is exactly what delivers a new set of benefits to those involved in this process. One of the most relevant benefits is the wider accessibility and liquidity of assets. Indeed, the list of assets that can be tokenized is getting larger by the day. For instance, you can now tokenize real estate, artworks, cars, antiques, and other illiquid assets.
With estate tokenization, asset and fund owners are able to raise capital more easily, whereas investors can access private real estate investments. This becomes one of the most popular use cases of blockchain in the real estate industry that equally benefits the asset owners on one side and investors on the other.
However, all of this would be meaningless without transparency. Due to blockchain, all asset-related transactions are available to all participants. This is quite useful in situations when an asset owner wants to trace the history of all actions with their asset, from verifying the origin to analyzing ownership changes.
Also, any person interested in creating, selling, or buying tokens knows that information related to their asset and transaction records following it are accurate, verified, and cannot be altered once on the blockchain. As already mentioned, these assets can have fractional ownership.
Lastly, smart contracts within STO platforms eliminate the need for a third party and accelerate the entire process of transferring the asset and conducting transactions.
In Final Words
Undoubtedly, tokenization will continue transforming asset management by entering various markets and turning them into a much safer environment rich with different benefits.
As it is with every new trend supported by new technologies, it will take time until people adapt to it and learn which benefits they can expect once they start tokenizing their assets. Needless to say, the quicker the adaption, the more powerful a