Asset tokenization has become a ground-breaking idea in the constantly changing world of banking and investing. It can completely change our understanding of and approach to managing assets. In this article, learn what asset tokenization is and its applications.
Asset Tokenization: What Is It?
Digital asset tokenization is the process that converts an asset’s ownership rights into digital tokens (on a blockchain). Whether full or fractional ownership tokens, which can represent practically any value object, they can function as digital certificates of ownership. Owners can keep custody of their assets because they come with blockchain storage security.
Asset Tokenization: How Does It Work?
Asset tokenization enables a simpler and more effective financial system powered by blockchain technology. It combines creation, distribution, trading, clearance, settlement, and preservation into a single layer.
Tokenized asset creation is a multi-step process that includes:
- identifying the type of token (fungible or non-fungible),
- choosing the blockchain to issue the tokens on,
- choosing an external auditor to confirm off-chain assets,
- releasing the assets, and more.
Users can feel more confident in tokenized securities offerings because asset ownership records are unchangeable and immune to manipulation because of the decentralized structure of blockchain networks, which also provide transparent storage.
Asset Tokenization Applications In Real World
- CBDCs or Central Bank Digital Currencies
Do you know that anyone can trace a token’s complete history, from its creation to its most recent transaction, because CBDCs are issued on the blockchain?
Real-time tracking of the account balances of addresses that possess CBDCs is also possible. Although the application of CBDC is anticipated to aid in suppressing corruption and fraudulent behavior, CBDC is a two-edged sword that may lead to more government monitoring and privacy violations.
- Startup Fundraising With Tokens
Now, SMEs and startups can raise capital without issuing IPOs, venture capital, or other financing methods. Thanks to the concept of startup fundraising with tokens powered by blockchain, startups, and SMEs can raise funds from the public via ICO (Initial Coin Offers).
But blockchain token fundraising has entered a dangerous phase, with authorities like the US SEC filing lawsuits against initial coin offerings (ICOs) and calling them “unregistered securities.” This is where security token offerings (STO) come in.
Tokenized securities offerings fill the gap between the somewhat legal but expeditious and easy initial coin offering (ICO) procedure and the highly regulated and drawn-out IPO fundraising process. Today, startups, SMEs, major corporations, and private equity firms can all do STOs.
- Real Estate
Asset digitization trends are the key focus at this intersection, as blockchain technology infiltrates the real estate market faster than most other industries.
Now, you can use the blockchain to encode the ownership rights, the terms of purchase and sale, voting rights, and a one-year vesting period for initial token holders. The blockchain encrypts documents exchanged during a standard real estate transaction, including notarial deeds, ownership certificates, and buyer and seller identifying information.
Tokenized real estate is now sold on a few well-known platforms. In cryptocurrencies, these tokens are a rapidly expanding segment that frequently generates interest from rent.
Tokenization of an Asset: How To Do It?
We’ll use the tokenization of a physical item on a blockchain that is open to the public and compatible with EVMs.
- Choose a physical asset to tokenize. Choose a token standard: stock, artwork, wine, or automobiles.
- Decide which blockchain to use for token issuance. This might be an L2 rollup such as Arbitrium or Optimism, or it could be Ethereum.
- To confirm actual assets and ensure regulatory compliance, choose a third party.
- Evaluate and inspect smart contracts; distribute tokens.
If you don’t want to tokenize the asset yourself, some platforms will do the difficult portion for you.
Real-world asset tokenization is currently, let’s say, in its beta phase. The transparency and immutability of blockchain technology are compelling features. However, customers often lose interest in it when they hear about the many breaches and crimes in the cryptocurrency space.
Furthermore, a major barrier to widespread adoption remains the technological issues that users face. To determine if the tokenization of physical assets will reach its full potential, we’ll need to monitor developments in the larger cryptocurrency and blockchain space.