The Rise of TokenizationBy Enrique Suárez | Mon, 01/04/2021 - 13:14
Today, it takes one click to buy an airline ticket or a new pair of shoes but if you want to buy stocks or buy a house, transactions are more time intensive. Whether it’s waiting for documents or settlement, many types of transactions aren’t instant. Assets like real estate, fine art, gold or carbon credits are more difficult to transfer, often obligating buyers and sellers to contend with mountains of paperwork and lengthy procedures. By representing physical assets as digital tokens on a distributed digital ledger or blockchain, it’s possible to unlock the value of real-world assets and to exchange them in real time.
Bitcoin has proved that an asset can exist purely on a digital platform. Blockchain technology is immutable, decentralized, and secure, and this allows accessibility from people around the entire globe. But digital currencies were just the beginning. Because blockchains can create non-fungible tokens, the opportunities to what assets can be digitized are endless. The tokenization of real-world assets is now attracting attention from investors and financial markets from around the world.
Tokenization of assets is a process in which the rights to an asset are converted into a digital token on a blockchain. Ownership rights are transmitted and traded on a digital platform, and the real-world assets on the blockchain are represented by digital tokens. Many types of financial assets are already digital, such as when cash is represented as numbers on a screen. But tokens enable certain assets to move swiftly across digital platforms or networks. Opportunities for cross-border trade increase as geographic barriers are removed. Tokenization can unlock new markets for previously frozen, underutilized or illiquid assets and offers possibilities for new types of fractional ownership.
Today, a large percentage of the global population cannot access high-value investments. Powered by blockchain technology, new techniques of capital formation present an introduction to capital mobility and global capital markets. Let's review the main benefits of tokenization.
Accessibility: Tokenized assets can be accessed globally, 24/7 from anywhere in the world.
Immutability: Once anyone buys the token, ownership cannot be removed. However, it can be transferred from one person to another if the owner sells it to someone else. In case of any disputes, conflicts can be solved quickly by looking at immutable records of ownership.
Transparency: As each record will be maintained on a shared and immutable ledger, no one can claim to own assets fraudulently. Transparency within the ecosystem will ensure everyone has a clear view of the updated ledger of ownership records.
Cost-effective: Tokenized assets remove the involvement of intermediaries that often restrict investment accessibility. Eliminating intermediaries from the system will reduce high fees and bring clarity.
Easy to invest: Since tokenized assets offer greater liquidity with the possibility of fractional ownership, asset tokenization removes the need for minimum investments. Digital assets are transforming the way investors look at traditional market opportunities and have created an entire new marketplace.
Now, we shall list the largest applications of the asset classes that can be tokenized and made available for small and large investors. What can be tokenized? From exotic assets like artwork, sports teams and racehorses to traditional assets like bonds, real estate, venture capital funds and commodities, almost every asset class can be tokenized.
Real estate: The most pertinent and hottest topic for security tokens right now is within real estate. The aggregate global real estate value in 2020 is $45.3 trillion according to PwC. As these assets start to become digitized, they not only reduce friction from traditional markets, but open up access to secondary markets that previously have not existed. Tokenized real estate makes up a large part of the DeFi movement. Companies like MountX.io allow you to buy individual security tokens of Canadian real estate from anywhere in the world, with some investment opportunities starting at only US$10,000.
Art and collectables: The fine art industry alone is $67 billion, and that is not accounting for other unique collectables. Because items on a blockchain can be non-fungible, digitizing these assets and selling them on second marketplaces allows more selling and buying opportunities. From baseball cards to automobiles to in-game collectibles, transmuting these assets onto a blockchain is a natural next step in these verticals because of the increased accessibility of tokenization. People in these niches want the ability to trade their unique collectables around the world.
Gold and rare metals: There are about 5.7 billion ounces of gold. At today’s market price of about US$1,650 per ounce, that puts its market cap at about $9 trillion. One of the most important physical assets on the planet, gold has been a referential point of value for almost every country for decades.
Others: From supply chains to cargo shipments to sports contracts, tokenization possibilities are endless. Essentially, any non-fungible asset can be tokenized for added benefits of a blockchain, but there are many challenges the industry must face before tokenization truly becomes prevalent. New business models must be created, platforms must be integrated with existing infrastructure, these platforms have to have the safest cybersecurity and custody technology, compliance regulations must be met, and government jurisdiction must be established.
The token economy embodies a significant shift from extensive centralized agents to the individual. Cryptology replaces intermediaries with blockchain network members executing complex algorithms to verify the integrity of the ledger. We expect that the emergence of asset tokenization will bring new actors, new services and new roles in the market. It will present new opportunities to the traditional players to meet the new demands of the token economy. At MountX, we have been thoroughly researching the blockchain and its use cases in the real estate market. We were the first platform to tokenize real estate in Mexico; therefore, we understand what it takes to tokenize a real estate asset without any constraints. Consult our experts and start investing exponentially with all the benefits of a digital token.