Tokenization of Real-World Assets: A Key Driver for a Digital Future

Of Kiran Vivekananda

The rapid development of Web3.0 technologies, such as blockchain and virtual digital assets, has paved the way for a breakthrough financial innovation known as tokenization. By enabling the creation of virtual representations of real-world assets on blockchains, tokenization bridges the gap between traditional finance and the digital realm, unlocking a range of benefits for investors and assets. This article explores the transformative power of tokenization, its benefits, and the assets that can be tokenized, ushering in a new era of liquidity, efficiency, security, and global market access.

The power of tokenization

Tokenization involves issuing tokens on a blockchain, which represent fractional ownership in tangible assets. This revolutionary concept democratizes investment opportunities and enables seamless buying, selling and trading of asset-backed tokens on digital marketplaces. By leveraging the benefits of blockchain technology, tokenization serves as a catalyst for the digital future of ownership and investment. A Boston Consulting Group (BCG) survey suggests that the tokenization of global illiquid assets could become a $16 trillion industry by 2030, while a CITI Group’s latest Global Perspectives and Solutions (GPS) report estimates real-world asset (RWA) tokenization as a “killer use case.”

1. Improved liquidity and reduced costs

One of the most important benefits of tokenization is increased liquidity. Through shared ownership, investors can buy and sell smaller parts of assets, expanding the range of investment opportunities and making markets more accessible. Eliminating intermediaries and streamlining transfer processes significantly reduces transaction costs, making investing in tokenized assets more cost-effective and efficient for both investors and assets. Also, faster transaction settlement speeds up the process of buying and selling assets, further increasing market activity.

2. Security and transparency

Tokenization leverages the inherent security features of blockchain technology to protect assets from fraud and cyber-attacks. The transparent nature of blockchain ensures that fake assets are kept at bay, creating trust and confidence in the market. Investors can verify the history and authenticity of assets, reducing the risk of fraudulent activities. In addition, blockchain’s immutable and publicly available records increase the transparency of assets and transactions, further strengthening market integrity.

3. Global market access and portfolio diversification

Tokenization breaks down geographic barriers, giving investors worldwide access to tokenized assets on blockchain platforms. This opens up new avenues for cross-border investment and diversification, and promotes global economic growth. Furthermore, tokenization gives investors access to a wider range of asset classes and sectors, facilitating portfolio diversification and effective risk management.

Assets that can be tokenized

The potential for tokenization spans different asset classes. Art and collectibles have emerged as a popular asset class for this purpose, with tokenization allowing fractional ownership and wider access to valuable masterpieces and rare items. There have also been examples of the tokenization of carbon credits making allowance trading more efficient, and promoting transparency in the fight against climate change. Commodities, such as agricultural products, gold or oil, can be symbolized to increase liquidity and price discovery.

Financial instruments, such as bonds and loans, can be digitized, enabling real-time tracking of ownership and performance. Nigeria’s Securities and Exchange Commission is considering allowing tokenized coin offerings backed by equity, debt or real estate.

Tokenization can also revolutionize real estate investment, reduce transaction costs and increase market liquidity. In addition, stressed and non-performing assets can be revitalized through tokenization, creating new opportunities for investors and financial institutions.

Conclusion

Tokenization stands as a logical progression in the digitization of assets, made possible by the power of blockchain technology and virtual digital assets. With its ability to increase liquidity, reduce costs, improve security, enable global market access and facilitate portfolio diversification, tokenization is poised to reshape the future of ownership and investment. As this innovative approach gains momentum, it paves the way for a digital era where traditional barriers are dismantled, unlocking unprecedented opportunities for individuals and institutions alike. The advent of tokenization marks a significant milestone in the ongoing evolution of the financial industry, propelling us towards a digital future of financial inclusion, efficiency and growth.

The author is Head of Public Policy, CoinDCX

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