The emergence of blockchain-based asset tokenization has changed the landscape of businesses that deal with assets, from art to buildings, management of such assets, and the way investors look at investing with assets. Today, asset tokenization is gaining significant traction and attention among potential global investors in the blockchain and financial world. What is the reason for the buzz around asset tokenization? What is meant by asset tokenization and what benefits it brings in for investors and entrepreneurs over traditional asset management business? That is what we are going to discuss in this blog, to help you understand asset tokenization platform development is indeed the right way to go, for your business as well. So, let’s go ahead and get started.
Unraveling the Concept of Asset Tokenization
Tokenization of assets is the process of issuing blockchain-based digital tokens that represent the value of a real-world asset. In simple terms, By tokenizing the asset, the asset value is divided into several shares, as well as their ownership is fragmented on a blockchain platform that keeps a track record of every transaction and ownership information.
For example, a million-dollar value property can be divided into 100 shares/ 100 tokens, each token representing 1% of the value of the property. This enables fractional ownership, and the investor owns a % share of the property according to the number of tokens they purchase.
Various types of assets can be tokenized on a blockchain platform such as,
- Real Estate Assets
The major stumbling block for Real estate investors is the illiquidity of assets due to the involvement of third parties, limited investors access etc. Through tokenization of real estate assets, middlemen are eliminated and token issuers and investors can conduct speedy, smooth transactions with enhanced liquidity.
- Private Equity shares
Blockchain-based tokenization simplifies and streamlines the process of issuing, managing, and selling equity private equity shares within the defined time period, and companies can efficiently reach global investors and amplify their financial growth.
Tokenization of commodities removes barriers to entry and allows investors to efficiently access the market and offers them a wide range of opportunities to double up their investments. It also provides them with added liquidity for efficient and seamless transactions.
- Any Other Physical Goods
Any physical goods can be tokenized from artwork, wine, cars, private companies ownerships, partnerships, etc. By tokenizing, the assets become more easily accessible, and blockchain brings in more liquidity and transparency for users.
Types of Tokenized Assets:
- Fungible Asset Tokenization :
Blockchain is widely considered to be the best technology for managing various kinds of digital assets. The specialty of fungible asset tokenization is that it is interchangeable. Fungibility acts as the fundamental feature of any currency. The value of each fungible asset token is equivalent to the next, and it relates better with real-world digital assets. Its two main characteristics are interchangeable and divisible.
- Interchangeable :
It is figured that each unit of the tokenized asset holds the same value and validity in the market. For example, the value of 1 BTC (Bitcoin) is the same since it is interchangeable. It does not matter where the Bitcoins were purchased, but it will still have the same functionality without any variations.
- Divisible :
The fungible assets are divisible into smaller units and hold the same value. The value of digital assets will differ based on the market trends in the future.
- Non-Fungible Asset Tokenization :
Non-fungible tokens are unique tokens that represent digital collectibles. Non-fungible assets are unique that cannot be split or interchange with assets of the same type. Its three main characteristics are non-interchangeable, non-divisible, and unique.
- Non-interchangeable : There is no way non-fungible assets get replaced with other assets since each represents a unique value.
- Non-divisible : Non-fungible assets are not divisible, but fungible-based non-fungible assets offer fractional ownership in digital collectibles like commercial real estate.
- Unique : Each non-fungible asset differs from another of the same type since it has unique information and attributes.
The Key Benefits of Asset Tokenization
- Improved Liquidity
As discussed earlier, the tokenization of assets enables access to a broad range of investors. Once the tokens are created, investors are allowed to trade them on a secondary market of their choice, which brings in more liquidity, thereby efficiency to transfer the assets or convert them into fiat money.
- Faster and cheaper Transactions
A tokenized asset platform eliminates middlemen and facilitates automated smart contract-based transitions. Therefore, it facilitates speedy execution of transactions with lower transaction fees.
- Improved Accessibility and broad user base
Tokenization of assets paves way for a wider range of audiences to participate and invest in assets as it enables fractional ownership and divides the asset value into small shares. Even small-time investors can participate in an investment of expensive asset value and diversify their portfolios and earn double the profits with the help of tokenization.
- No geographical barriers
As the asset values are converted into digital tokens, there is no geographical barrier. Any investor can purchase and own a share of any asset, and conduct transactions from anywhere around the world.
- Elimination of middlemen
Elimination of middlemen in a tokenized asset platform not only helps with reduced transaction costs, but also ensures quick settlements and provides added security, immutability, transparency, and a quick process.
- Enhanced Transparency
Blockchain records every transaction, legal, and ownership information of the asset which cannot be altered or erased once recorded. Every involved user can view and access the information required such as ownership rights, etc.
With the constantly growing demand and competition, many companies have started offering asset-backed tokenization development solutions. To choose the right platform for your business, below mentioned are a few factors that you need to carefully look into.
Distancing Asset Tokenization from Securitization and Fractional Ownership
Blockchain technology has offered enormous benefits towards asset tokenization. It has improved the performance of information security systems through timestamps and cryptographic encryption. Traditional asset tokenization focuses mainly on data, whereas asset tokenization with blockchain focuses on assets. Tokenization and securitization differ from each other. Tokenization results in tokenizing real-world assets into a digital token with high liquidity. On the other hand, securitization focuses on converting low-liquidity assets into security instruments with higher liquidity.
Essential Factors to Carefully Consider in an Asset Tokenization Platform
- Legal Compliance
The first and foremost factor to analyze is if the platform is legally compliant. To ensure a strong foundation and long-term sustainability for your business, the asset tokenization platform should comply with every essential legal framework based on your geographical location. Also, you should make sure the platform complies with KYC( Know Your Customer) and AML( Anti-Money Laundering) Norms to ensure authentic users and transactions.
- Infrastructure and Blockchain Integrations
The company you choose to tokenize your assets on should thoroughly research, analyze your business model, and integrate the right blockchain platform it will be feasible to work with and implement advanced features and core functionalities for smooth operations. Also, the platform should comprise robust infrastructure, scalability, and flexibility for users to customize or make decisions on the platform according to their personal preferences.
- Enhanced Security
Security should be given utmost importance while building your asset tokenization platform. Every user information, asset information, and transaction details should be completely protected end-to-end and users should be constantly updated about what is happening on the platform, the changes made, etc. The platform should be integrated with multiple security protocols for smooth, secure, risk-free operations for both token issuer and investors.
Reasons to Prefer Asset Tokenization for Businesses
- High Liquidity :
Asset tokenization is the best choice for any business firm to generate high liquidity, and it provides the best-streamlined process and smoother transactions. Tokenization of assets represents digital tokens in private sectors for security reasons. Digital tokens are sold to potential buyers with proper proofreading in similar areas in the role of authorized investors with sufficient funds for risk-taking. It allows the investors to leave the platform at any time by selling their tokens on a secondary market. There is no need for investors to worry about early redemption and costs that occur. Ongoing forward, asset tokenization benefits from boosting the price value of private securities in the global market.
- No Intermediaries :
Asset trading became more popular for achieving a desired settlement for involved parties. Asset trading ensured to scrutinize the documentation process to check the eligibility of investors. Asset tokenization with blockchain is integrated with smart contracts to offer better transparency and immutability. It results better when intermediaries are eliminated from transactions for better efficiency.
- Automation and Refinement :
The presence of smart contracts in asset tokenization plays a major role in the automation process. The elimination of third parties benefits in cost reduction and efforts needed in administration to end the process. This results in users experiencing faster transactions and cost-effectiveness.
- Better Transparency :
Asset tokenization has better efficiency, which refers to transparency. Tokenization benefits the token holders to gain ownership rights after purchasing from the market. It ensures the users are aware of the dealers and source of purchasing the token. These factors improve the transparency over asset management.
- Smooth Accessibility :
Asset tokenization ensures better accessibility for global audiences. The fragmentation process benefits the assets from gaining minimum funds as tokens. On the other hand, it helps the investors to gain ownership over a minimal fraction of shares. It results in proper relaxation in fund investments and timeframe for repayment.
What Does the Future Hold?
As we discussed earlier, asset tokenization is gaining momentum by the day, and more issuers and investors are inclining towards them due to the many benefits it brings in such as enhanced efficiency, privacy, transparency, speedy and seamless transactions, globalization, etc. Mainly, it brings in a wide range of opportunities for small-time or new investors to participate in the ownership of assets with a rich value, to diversify their portfolios, and boost up their profit chances. Experts predict that tokenization of assets is slowly transforming the industry into a whole new level and has all the potential to become the future of asset investments.
If you are eager to become a part of this revolution as quickly as possible, the best choice is to acquire a white label tokenization platform from a reputed company. A white-label platform is nothing but a readily-available platform that ensures a quick and an efficient launch for you to get down to business in the shortest possible time, and forge ahead of your competitors in the market. Therefore, conduct ample research and choose your asset tokenization company as soon as possible.