The tokenization principle brought about by blockchain technology is a fundamental element in the much talked about revolution that this technology portrays. The knowledge that previously unsplittable entities can now be broken down into smaller units and made more accessible is a mind-changing philosophy.
By improving accessibility, blockchain technology is creating a globally inclusive economy that is enabling expansion and value distribution among the various cadres of economic development.
On what tokenization is doing to real world assets, we will be taking a look at some of the factors enabling this system, and the asset types that are already becoming tokenized.
What is Tokenization?
First of all, it is important to understand that the idea of tokenization involves the breaking down of real world assets into digital tokens, therefore creating a flexible value system for the converted assets.
Tokenized assets become extremely manipulatable, having achieved a liquified nature. This simply breaks whole assets into much smaller units that retain the same characteristics of the original structure.
Blockchain technology is dynamic and is currently playing a significant role in digitizing real world assets. A number of platforms are already in existence that are allowing asset owners to submit their property for proper valuation and tokenization. This enables these owners to introduce such properties into the globalized digital assets marketplace, making it more accessible to investors at all levels all over the world.
Investors on the other hand are enjoying an extended level of diversification with the availability of alternatives. This development provides them with the option of carrying out the age long principle of ‘don’t put all your eggs in one basket’. For instance, an investor can split his investment across several assets by buying smaller fractions of each of them instead of sinking his entire funds into one unit. This system encourages an improved risk management technique that is very much welcome in the investment circle.
The Venezuelan Petro, a Product of Asset Tokenization
In 2017, the Venezuelan government announced its plans to digitize its national asset, crude oil. The president and his men saw this as a move that could deliver the country from the terrible economic situation that it found itself in.
The national cryptocurrency, Petro was planned to be backed by 5.3 billion barrels of oil, which was worth $267 billion at the time. Several months later, the cryptocurrency was launched amid controversies. Holding onto the Petro cryptocurrency today is as good as holding a stake in Venezuela’s national asset.
Without the concept of tokenization and the conversion of real assets into digital currencies, this may not have been possible. The economy of the South American nation has been so bad that even citizens are seeking for external solutions and wouldn’t bother investing within the country.
Tokenization in this case has broken the geographical barrier and enabled Venezuela reach out to a global market that is devoid of traditional barriers. Petro digital tokens, though backed by the nations oil, will still be influenced by the natural effects of the decentralized marketplace that blockchain technology has enabled.
Breaking Down the Rigid Real Estate Sector
One of the low liquidity assets segment in today’s global economy is the real estate market. Average real estate assets are usually above the reach of the common man. In order to own a property, especially in choice locations, much planning and funds investment is usually required. This is one of the major reasons why most of the world’s wealth, especially in real estate, revolve around a very small percentage of the global population.
Infrastructure tokenization platforms are in existence today through the provisions of blockchain technicalities that allow huge assets to be broken down into smaller pieces. The availability of utility tokens offers the possibility of breaking down these assets into smaller units that are affordable to investors at all levels. With this system, a small investor from any part of the world can purchase a small part of a functional apartment through its tokens. This will make the investor entitled to the rent, or other accrued benefits that may be associated to the apartment in proportion to the percentage of tokens held.
Practically speaking, in order to achieve real asset tokenization on properties and any form of assets, there needs to be a custodial entity that will be responsible for valuation, storage (where necessary) and periodic auditing of such assets.
It is this custodian that will represent a trusted party that will hold the given assets and convert it to tokens of appropriate value, before releasing these tokens into the market. A number of blockchain platforms are already in existence that are playing these roles and helping companies and asset owners to convert their assets into blockchain tokens and make them very flexible and available to the global marketplace. Polymath, Swarn, Harbor, and Securitize are some of the platforms that are currently rendering these services.
This initiative is totally rewriting the investment protocol and disrupting the asset class community on a global level. It is serving as a fundamental wealth redistribution strategy that will eventually breakdown the monopoly that currently exists in the global real assets marketplace.
Benefits Of Asset Tokenization
Several benefits have already been associated with the tokenization system that is brought about by blockchain technology in the real assets class ecosystem. Some of them have already been mentioned in the course of this post. They are listed as follows:
- Asset tokenization enhances liquidity of assets that otherwise have a very low liquidity.
- It allows asset owners to capture liquidity premiums from assets that otherwise, due to low liquidity, would not be actively traded.
- Tokenization enables new economic models around asset ownership, such as fractional ownership, thus users can purchase one cheap piece rather than an expensive whole.
- Tokenization through fractional ownership allows diversification of risk arising out of asset ownership.
- Tokenization and ease of transactions eliminate temporal and territorial barriers for asset owners in attracting investments.
- Asset tokenization effectively reduced entry barriers for trading and investing, by lowering the minimum payment charged for participating in the trading.
- It enables newer models of raising capital, by allowing projects that are under development to issue shares in the form of tokens to finance project development.
The revolutionary systems that are becoming available for regular users are having a huge impact on how most traditional processes are turning out. The global real asset industry is not left out in this case, as it is also having a direct impact on what tokenization is doing to real world assets.
At 4King Media, we’re interested in pushing boundaries and working with companies at the forefront of the blockchain wave. Be it companies spearheading tokenization, or the supply chain industry, or say renewable energy. We like disruption and we’ve got the team to put you on the map, get in touch if this feels up your alley.