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  • Tokenization 101: Everything You Need To Know

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    In a digitally-driven world, blockchains are driving innovation. This decentralized technology empowers users with an immutable, transparent, and secure platform. It has also developed optimal solutions that address issues in a number of industries such as finance, medicine, education, and more.

     

    Cryptography is used extensively to encrypt transactions and these are stored symmetrically on a distributed peer-to-peer (P2P) network. This helps to create a trustless environment that eliminates the need for third-party intermediaries.

     

    There are many advantages associated with this distributed ledger technology, of which tokenization is a very important facet. Tokenization is known for its “Midas touch” effect, where it instantly transforms previously illiquid assets into marketable units.

     

    What Is Tokenization?


    In a nutshell, this feature fragments the ownership of tangible assets into digital tokens. For example, say you hypothetically own a Banksy mural. The artwork is valued at $500,000, but you don’t find any buyers. Using tokenization, you convert the rights of this mural into 5,000 tokens (this can be any arbitrary number) valued at $100 each. Now, it becomes easy to sell the artwork to multiple individuals where the ownership stake is proportionate to the number of tokens held by each buyer.

     

    These tokens have innate value as they are pledged against assets that are bound to appreciate with time. Another attribute of these tokens is mobility as they can be bought and sold online without any geographic restrictions or hassles. This not only makes them an attractive option for investors but also metamorphoses assets into universal products.

     

    What Are The Different Types Of Tokenization?

    Currently, there are six prominent types of tokenized asset offerings. They have been explained below:

    • Real Estate Tokenization: As the name suggests, this category is associated with the property business. It enables users to tokenize homes, offices, and more into tokens that can be traded virtually. The blockchain is also used to manage documentation which helps in streamlining the entire process. It also helps agents to sell large and expensive projects with relative ease.
    • Art Tokenization: For a very long time, the art industry was limited to a very niche community. However, tokenization is changing this. By converting artwork into tradeable tokens, investors are encouraged to reimagine this sector and create diverse investment portfolios. Moreover, it empowers independent artists to connect directly with their patrons by sidestepping traditional platforms like galleries and auctions.
    • Stablecoins: Tokenization of financial assets is helping to create stable mediums of exchange. By committing assets such as bullion, precious stones, and even fiat currencies, a stablecoin can be launched. Stablecoins are not susceptible to the market volatilities affecting conventional cryptocurrencies which make them commendable stores of value.
    • VC Fund Tokenization: The process of investing in emerging sectors and enterprises is democratized through tokenization. By pooling together resources from multiple investors, venture capitalists can direct their customers’ funds into next-generation innovations. This method also allows the tokens to be traded publicly and offers improved liquidity.
    • Mining Repository Tokenization: Mines around the world can fund their activities by digitizing the extracted ore. Tokenization of real-world assets will help mining companies to bypass traders and interact with traders directly.
    • Illiquid Asset Tokenization: Whether a zoo wants to fund the upkeep of a Siberian tiger or an archivist plans to finance the restoration of withered celluloid films, tokenization can help out. Governments, NGOs, and Trusts can now raise capital for public or heritage projects by tokenizing previously illiquid assets such as monuments, fauna, and more.

     

    Creating an asset tokenization platform in 2019 is not an uphill task anymore. There are many companies that offer integrated solutions in this domain. While they help you save time and money in development, it is important to pay close attention to their offerings. Here are some components to ponder upon:

    • If they develop solutions for different blockchain platforms?
    • If their solutions are KYC/AML compliant?
    • If their platforms are user-friendly?
    • If they cover ancillary services such as whitepaper publishing, wallet development, and more?
    • If they support multiple liquidation options that allow easy deposit/withdrawal of funds?

     

    Today, it is possible to convert almost anything and everything into digital tokens. Tokenization is revolutionizing the way we approach the ownership and marketability of different asset classes. Experts believe that we have only scratched the surface of this trend, and it is expected to grow exponentially in the near future.

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