Leaders in many parts of the financial industry are evaluating the potential of tokenized assets to change how we view finance. Investors in a variety of sectors are looking to take advantage of the opportunities that tokenized assets provide.
Why the push toward these kinds of digital assets?
Here are some of the major benefits of getting involved in a tokenized asset market that represents a traditional asset or equity.
Tokenized Assets and Liquidity
In converting a traditional asset to a tokenized asset on a blockchain, buyers and other stakeholders are able to utilize all kinds of new liquidity in markets.
First, there’s the 24/7 market, replacing the traditional market day setup.
Various kinds of traditional assets are only bought and sold through the operating hours of a national exchange or other marketplace. The tokenized asset can be much more versatile in how it is traded, because the token itself may not be subject to market day activity requirements.
In a key sense, tokenized assets make traditional assets more liquid in terms of rapid transactions, and open up these assets by matching supply and demand in new ways.
Fractional Ownership with Tokenized Assets
Another beneficial aspect of tokenized assets addresses one of the biggest barriers to widespread investment in higher-value assets.
Minimum participation thresholds keep many different kinds of investors out of a market. People who want to diversify may want to limit any one given holding, and a minimum investment works against that principal. Smaller traders will only have a certain amount of capital available, and may be tempted to work on margin.
In this kind of scenario and others, tokenized assets provide some of the same flexibility as tools like real estate investment trusts (REITs) and exchange traded funds (ETFs). That is, they abstract the asset into something that can be bought in smaller portions.
Bitcoin is an excellent example of this fractional ownership potential, because research shows that the vast majority of small traders will own a small fraction of a Bitcoin rather than an entire Bitcoin, where value right now, for reference, is around $9000 per coin.
Low Transaction Costs on Tokenized Assets
It’s important to talk about how tokenized assets can lower transaction costs.
Real estate, again, is instructive here. For traditional assets off the digital grid, many hundreds of dollars apply to any significant sale refinance or other transaction. The fees attached to these assets are so large that they’ve spawned their own industry, where lenders and borrowers put in hours of work and spend hundreds of dollars to satisfy the detailed requirements of the deal process.
It’s not hard to see how decentralized blockchain assets will take away some of these major barriers and inefficiencies. That frees up money that would otherwise be consumed in an average asset transaction.
Automatic Settlement Features of Tokenized Assets
Just as tokenized assets can take money out of the equation, they can also save massive amounts of time.
Many kinds of traditional verification methods have to do with establishing security benchmarks for physical fiat money wherever it may have existed within a pipeline. A blockchain asset strategy gets rid of many of these requirements as well.
Stronger Compliance and Regulatory Standards for Tokenized Assets
Regulators have always struggled with how to handle ‘abnormal’ assets of any kind. That applies to cryptocurrency as well, but a tokenized asset is not a cryptocurrency, per se. Rather, it’s a representation of some tangible assets that can be verified on the market. It’s more akin to a stablecoin, an offering that backs a blockchain with the value of an established asset.
In some ways, asset tokenization can provide regulators with a forward facing roadmap, and better relationships with the people who must report to the agencies. In some key ways, tokenized assets build trust and allow for that partnership that will ultimately bring us closer to the vibrant use of blockchain, even in traditional finance systems.
Businesses Working With Asset Tokenization Innovation
Some of today’s most functional and innovative exchanges, brokers and other firms are working on asset tokenization implementations that will raise the bar for this type of fintech.
At the vanguard of this innovation is the crypto trading platform Currency.com, which provides a regulated cryptocurrency exchange that’s among the best in its class. With over 1500 tokenized assets, this clearing-house for blockchain representation is a major way for investors to get involved, and is likely to be a template for future market entrants.
eToro, a company known for its pioneering work in DeFi and other aspects of blockchain technologies, is hard at work on blockchain representation of asset classes at its branded eToroX department. Securities handlers like AlphaPoint are building systems to “make illiquid assets liquid,” in a clear nod to the power of asset tokenization to open up faster markets.
Although early adopters are often among the most tech-savvy parties in their respective markets, some are also tied to larger firms like major e-commerce sellers. For example, check out how tZERO, in collaboration with Overstock.com, is creating brokerage options and more.
These blockchain trailblazers are making rapid progress in blending traditional finance models with new digital assets. The reasons discussed above show why it’s a benefit to continue developing new initiatives in this sector.