To tokenize or not to tokenize, that is the
question — and not the only one by the way. Let’s explore asset tokenization
and answer some popular questions. What is asset tokenization? Tokenization is the process of creating digital
tokens on the blockchain that represent ownership of real-life assets such as investments, precious
resources, collectibles & art, or access to a company's services. A token can represent a part
of the asset, plus people can also be allowed to buy fractions of the token. This allows to create
a much stronger economy around trading assets. What are the benefits of asset tokenization? Blockchain technology is what's
behind the value of tokenization. It enables greater accessibility and liquidity
of assets, transparency, immutability, fractional ownership, and cost savings. Literally
anyone in the world can tokenize their assets and openly trade them without boundaries.
Owners can trace the entire history of a particular asset, verify its origin, and
see how its ownership has been transferred. Are there any risks behind asset tokenization? Tokenization is gaining a lot of traction
but there are still areas for improvement. Some of the challenges include: Lack of standardization. As more and more platforms emerge,
the lack of protocol standardization makes it difficult for third-party applications
such as wallets to interact with the platforms.
Regulatory issues. Legislators are still wrestling
with how to best regulate blockchain-based financial services. No doubt, asset tokens will
gain more regulatory interest as popularity grows. Cyber attacks. We have to admit that there is still no technology
in the world that is 100% immune from attacks. Yet blockchain developers are working hard to
enhance security. There is a downward trend in the number of cyberattacks on platforms, wallets,
and other services running on the blockchain. Asset-backed tokens — what are they? Tokens are digital records of ownership,
giving you exclusive rights over an asset or a fraction of the asset.
For example, a token could provide ownership of one theater ticket,
one square meter of a house, one digital picture, or even 1/100th of a work of art.
Compiled and built with regulatory compliance, tokens can also represent securities
and be traded in a public market.
Is there a difference between owning an asset
directly and owning an asset-backed token? The difference lies in the physical location
of the asset: exchanging tokens does not entail the transportation of the asset.
For instance, if the owner wants to sell their diamonds, they won't actually have to
make the trade in person and bear the risks of such a delicate exchange. A transaction
on blockchain is all that needs to be done. How do tokenized assets trade
on the secondary market? When a security is tokenized, the issuer
can track where the tokenized assets go. They will always know who is holding their asset
at any given moment thanks to blockchain-powered tools. Stakeholders have complete control over
how investors trade their tokens in the secondary market. They can verify purchases and sales,
or even restrict secondary market trades. What are the industries that are
embracing the concept of tokenization? Tokenization has already entered many
industries, from the financial sector, real estate, precious metals,
to sports and entertainment. In finance, issuing equity tokens, running
crowdfunding campaigns, trading shares of renowned brands are not just opportunities,
but the pillars of a new Fintech world. Real estate is also being transformed with
the introduction of tokenized property. It pushes the minimal limit of an investment
and allows buying small shares of a property. This way, if someone wants to sell a property
that's worth $100 million, they don't have to wait for one buyer to match that price.
tokenize it and divide the property into shares, with one share per every square foot. Tokenized
precious resources such as gold bring about many benefits as well. Investors don’t just buy
tokens, but purchase the rights to real assets stored in secure vaults. It rids the owners
of the burdens of storage and transportation and allows them to openly trade their gold
assets just as easily as any other currency. In sports, blockchain digital assets can
be introduced to tokenize anything from the teams and clubs themselves to memorabilia,
merchandise, stadiums and even equipment. It is a great tool for attracting investments and funding the development of
global sports communities. What are the reasons why the
market is shifting to tokenization? Tokenization is set to disrupt the
foundations, frameworks and workflows of the current financial system with a
domino effect on every other industry. The shift to tokenization is
driven by several factors: It enables businesses and the community to
define the valuables and their worth. People can monetize their creations and be rewarded for
their contributions. For instance, a person's participation in market research could be rewarded
with a tokenized share of the developed product.
It unlocks previously frozen markets
(like banking in developing countries) by giving everyone access to financial services.
It also allows business startups to easily attract initial investments and engage a wider
audience in developing their projects. It can inspire innovative
marketplaces and business ecosystems, where consumers and enterprises with similar
preferences could connect and interact in more sustainable, effective ways.
For example, businesses can motivate customers to make achievements using their
products and reward them for their successes.
It increases trust across all market participants
by taking third parties out of the picture, and making chances of arbitration, manipulation
and corruption of data slim to none. What should be considered before
participating in the token economy? There are several factors that
should be taken into consideration: the business model, cybersecurity, platform
integration, jurisdiction, and compliance. In terms of the business model, companies have to
figure out the value chain. For example, they can choose to advise issuers on the token's design
or serve as the safe keeper of tokenized assets. When it comes to cybersecurity, keep in mind
that though distributed ledgers are intrinsically secure, any design has its weak points at the
edges. A trusted blockchain development company can help close all the back doors.
Selecting the right platform depends on the regulations to be followed, types of
products and services offered to the clients. The infrastructure needs to support the
business model as well as be fully compatible with downstream systems.
As regulatory and legislative frameworks can differ from jurisdiction to
jurisdiction, Businesses should ensure tokens are compliant with regulations both
on the investor’s and issuer’s sides.
Is the asset tokenization process
difficult and time-consuming? Asset tokenization is less
complicated if you partner with an experienced blockchain company. Let's
take a look at the steps you will need to take. Step 1. Choosing an asset
It's easier to tokenize an asset that has its own market so you don't have
to worry about proving its value to investors. If your asset is not very popular
and it's difficult to evaluate it, you should request a valuation
from an auditing company. Step 2. Developing a business model and strategy
Designing your business model, you'll have to think about sources of income, financing
details, and evaluate the token's user base. Step 3.
regulations in your jurisdiction You'll need to understand the
laws relating to digital assets and blockchain technology and strictly
comply with them. Sometimes it's best to contact an experienced legal advisor
and ask for a professional consultation. Step 4. Creating the platform
You’ll need a good team of developers. And if your code is open source, other passionate crypto coders can look
through the code and make suggestions. Step 5. Publishing a whitepaper
A whitepaper describes why your token has been created and how potential buyers can benefit
from purchasing your asset-backed tokens. Include an analysis of your work and the conclusions
that you came to when preparing the project. Step 6. Attracting investors
After publishing the whitepaper and testing your new platform, you can start
working on attracting potential investors. This is where your marketing skills come
into play. Providing limited time offers and other incentives, such as airdrops,
could draw people to using your tokens.
Tokenization is already playing a
transformative role in asset management, slowly but surely entering numerous
markets, democratizing them, and making them safer and more equitable.
Asset tokenization is no longer perceived as a temporary phenomenon as companies, startups, and
individuals keep finding new objects to tokenize. Eager to find out more about asset
tokenization? — Read our blog article “Asset Tokenization From A to Z: Explanation,
Benefits, Limitations, and Real-Life Use Cases”. Thank you for watching this video. Hit the bell
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