The Asset Tokenization Process
Overview of Asset Tokenization
Asset tokenization transforms the ownership of various asset types into digital tokens on a blockchain.
The lifecycle of a tokenized asset can be broken down into five key stages:
1. Deal Structuring
The first stage involves the asset owner or issuer identifying the specific asset they wish to tokenize.
This can encompass a wide range of assets, including real estate, art, precious metals, intellectual property, stocks, and commodities. During this phase, the framework for tokenization is established, taking into account the regulatory and legislative considerations that may differ based on whether the asset is categorized as a security, commodity, or something else.
Important decisions regarding the token’s legal framework are made at this stage.
2. Digitization
In the Digitization phase, the physical asset is secured by transferring it to a managed structure or location, typically under the supervision of a qualified custodian or a certified trust company.
Following this, a digital "twin" of the asset is created on the blockchain as a token, utilizing a specific tokenization standard. A crucial part of this process is the establishment of a digital Register of Members (ROM) for the asset, which records the current investors in the token.
This ROM is then uploaded to the blockchain, serving as a comprehensive record of ownership.
3. Primary Market
During the Primary Market phase, tokens are offered to investors in exchange for their investment capital, with the details of these investors recorded in the digital ROM.
Digital assets can reach end investors through traditional channels, such as financial institutions and brokers, or through newer platforms like digital-asset exchanges.
To hold the digital asset, the investor or their representative must create a digital wallet, while the corresponding physical asset remains secured in the issuer’s account with the traditional custodian.
This stage often involves a distributor to facilitate the transfer of the digital assets.
4. Corporate Actions
Once a digital asset is in the hands of the end investor, it requires ongoing management.
This includes compliance with regulatory, tax, and accounting requirements, periodic assessments of the net asset value (NAV), and execution of corporate actions such as dividend payouts and facilitating shareholder voting.
Many of these processes can be automated using smart contracts embedded within the token.
This management continues throughout the token's lifecycle, until its maturity or redemption.
5. Secondary Market Trading
The final stage, secondary market trading, capitalizes on the enhanced liquidity provided by asset tokenization.
Here, token holders can trade their tokens with other investors either directly or through an exchange platform.
Depending on the issuing entity and the asset type, owners may utilize a secondary trading platform—such as an alternative trading system (ATS)—to create a dynamic market for these tokenized assets post-issuance
The Transformative Power of Tokenization
The potential advantages of tokenization collectively illustrate its capacity to act as a transformative force, making investment opportunities more accessible and optimizing asset management processes.
Increased Efficiency and Reduced Costs
Tokenization has emerged as a game-changing technology that not only breaks through geographical and financial barriers but also revolutionizes the accuracy and efficiency of asset pricing. With the ability to unlock liquidity in previously illiquid assets, tokenization has garnered significant interest from institutions worldwide. In this rewritten description, we explore the key motivations driving the adoption of tokenization, including enhanced liquidity, fractional ownership, and improved security through transparency.
Increased Transparency and Better Risk Management
Blockchain-driven settlements reduce transaction risks, particularly those associated with counterparties. Furthermore, blockchain transactions are characterized by transparency and traceability, as each transaction is recorded, which aids in auditing and enhances accountability. This significantly helps to deter fraudulent activities and strengthens the integrity of transactions.
Learn MoreIncreased Market Liquidity
The efficiencies gained through tokenization broaden access to markets for a wider range of investors. By lowering excessively high minimum investment requirements, diminishing geographic barriers, and allowing more participants to engage, it ultimately boosts overall volume and liquidity. Additionally, tokenized assets facilitate near-instantaneous settlements, further enhancing liquidity and benefiting both investors and traders.
Learn MoreFractional Ownership and Increased Accessibility
Tokenization also addresses the challenge of limited access to investment opportunities by enabling fractional ownership. This groundbreaking feature allows more people to participate in investments that were previously inaccessible due to financial constraints. By breaking down high-value assets into smaller, tradable tokens, tokenization democratizes the investment landscape and empowers individuals to diversify their portfolios with ease.
Advanced Instruments Tokenizing Real Estate
Expanding opportunities for investors
Transferring the NFT can mark a change in property ownership
The simplest example of tokenized real estate is representing a single real-estate property as an NFT. Dynamically updating NFTs enable opportunity to invest in the first building phases and see the NFT`s value during the work progress realizing speculation before the reale estate complete.
Learn MoreOwning the NFT can be equivalent to owning the property
Selling a house would be as simple as listing an NFT. A buyer can press a few buttons and, if they have the necessary funds, purchase it within minutes. A drastic shift from the weeks-long process that real-estate transactions require today.
A 10+ trillion-dollar market opportunity
Value of tokenized assets will reach at least ~$10.9 trillion by 2030, with Real Estate, Debt and Investment Funds being the Top 3 tokenized assets
Notably, major institutions, including leading fund groups, have already embraced the potential of tokenization and tokenized some of the funds under their management.
Assets that were previously illiquid now experience increased trading activity.
Given the substantial size of the underlying markets and the abundance of use cases, it is expected that real estate and financial assets such as equities, bonds, and investment funds will emerge as dominant players in the tokenized market.
Tokenization of assets extends beyond real estate and securities, encompassing a wide range of eligible assets such as infrastructure, collectibles & art, entertainment & gaming, and data. This expansive scope implies that almost any form of value can be digitally represented and seamlessly transferred.
Consequently, tokenization unlocks opportunities and potential benefits for a diverse range of stakeholders. Individual retail investors who were previously limited in accessing certain investments can now participate, while corporations across various sectors can effortlessly tap into the debt markets by issuing digital bonds on-chain.
MAIN KEY REASONS FOR TOKENIZATION
Ensure that businesses can offer higher security and operational efficiency.
Six segments of real economy most apt for tokenization we are working for
Ensure that businesses can offer higher security and operational efficiency.
Exploring the Advantages of Crypto for Real Estate Payments
Expanding cryptocurrencies utilization
The integration of cryptocurrency into the real estate industry has gaining significant attention.
Accepting digital currencies for property transactions brings a plenty of benefits for both buyers and sellers.
Let`s delve into some of the potential advantages that come with embracing this innovative payment method:
- 1. Global Market Access: By accepting cryptocurrency, sellers can tap into a wider pool of potential buyers from around the world. Cryptocurrencies operate on a global scale, eliminating geographical barriers and allowing for seamless cross-border transactions.
- 2. Speedy Transactions: Unlike traditional bank transfers that can take days, cryptocurrency transactions settle much faster, often within minutes to hours. This swift process ensures that real estate deals can be finalized promptly, providing convenience for all parties involved.
- 3. Reduced Transaction Fees: Cryptocurrency transactions typically incur lower fees compared to traditional banking systems or wire services, especially for international transactions. This cost-effectiveness can bring significant savings to buyers and sellers alike.
- 4. Financial Inclusion: Cryptocurrencies enable individuals without traditional bank accounts to participate in real estate transactions. This newfound accessibility opens up the property market to a previously untapped segment of buyers, promoting financial inclusion and expanding opportunities.
- 5. Transparency and Security: Cryptocurrencies operate on blockchain technology, which provides a transparent and immutable ledger. This ensures a clear and tamper-proof record of the transaction, fostering trust and security between buyers and sellers.
- 6. Potential for Appreciation: Sellers have the option to hold onto the cryptocurrency they receive, speculating on its potential value appreciation over time. This investment potential adds another dimension to the transaction, presenting an opportunity for financial growth.
- 7. Privacy: Cryptocurrency transactions offer a certain degree of privacy that may not be readily available with other forms of payment. However, it's important to note that the level of privacy varies depending on the specific cryptocurrency used.
- 8. Innovation and Modernization: Embracing cryptocurrency as a payment method can position sellers and real estate firms as forward-thinking and innovative. This can attract a younger, tech-savvy clientele, fostering a reputation for embracing cutting-edge technology.
- 9. Simplified Cross-Border Transactions: Cryptocurrencies simplify the complexities often associated with international real estate transactions, such as currency conversion, transfer fees, and bank regulations. This streamlining of processes enhances efficiency and reduces potential hurdles.
- 10. Reduced Risk of Fraud: Cryptocurrency transactions are secure and irreversible once confirmed on the blockchain. This inherent immutability reduces the risk of chargebacks or fraudulent activities, providing peace of mind for both buyers and sellers.
- 11. Potential Tax Benefits: Depending on the jurisdiction, there may be tax benefits or incentives associated with cryptocurrency transactions. However, it's crucial to consult with a tax professional to understand the specific regulations and requirements.
