Asset Tokenization

Re-shaping the Future of Capital Markets

As the finance industry continues to develop, technology is becoming an integral part of tomorrow's capital market, specifically, through tokenization.

Blockchain technology allows securities to be digitally tokenized and opens up a vast amount of possibilities for both assets and investors and ultimately, will re-shape the future of capital markets altogether.

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What is Asset Tokenization?

Asset tokenization is, in short, the process of converting ownership rights and obligations of a particular asset and its associated value into digital tokens using blockchain technology. Therefore, each token represents a proportion of the asset's initial value, whether that be regulated financial instruments like equities, bonds or funds, or even tangible assets like real estate. Finally, a Smart Contract digitally facilitates, verifies or enforces the negotiation or performance, without the need for third parties.

Real-World Examples

Suppose we disregard Smart Contracts and Blockchain for a minute. Let us say you want to invest in real estate, but your opening investment is $20,000, and you plan on gradually increasing your investment each month. Indeed, with the traditional real estate market, this is quite inconvenient to do. How do you expect to buy a few square meters of an apartment?

Suppose we reverse the situation. Imagine that you own a property — say an apartment in central London, and you would like to raise some funds to renovate the property. The apartment is valued at $2,000,000 but you need $100,000. Raising the necessary funds may be awkward.

We now decide to tokenize the $2,000,000 apartment into 2,000,000 tokens (the number is optional, we could have issued 20,000 tokens). Thus, each token represents a 0.00005% share of the underlying asset.

Finally, we issue the tokens on a Smart Contract supporting platform, like Ethereum, so that the tokens can be freely bought and sold on different exchanges. When you buy one token, you buy 0.00005% of the ownership in the asset. If you buy 1,000,000 tokens, you own 50% of the asset.

Buy all 2,000,000 tokens, and you are 100% owner of the asset. Blockchain is an immutable public ledger. It ensures that nobody can "erase" your ownership once you have bought tokens even if it is not registered on a government-run registry.

Thus, to conclude this example, we took an asset, tokenized it, and created its digital representation that lives on Blockchain. Blockchain guarantees that the ownership information is immutable.

Why Is the Market Shifting to Tokenization?

Investors can invest in the property mentioned above or other assets while being located in another part of the world without physically visiting. Thus investment becomes secure, quick and straightforward.

Trading assets can take days or even months to accomplish a settlement. It requires external entities to verify the documentation of transactions and investor's eligibility, which adds additional expenses to the process. However, tokenization eliminates the requirement for intermediaries with Blockchain's ability to provide immutability and transparency.

Assets become highly divisible when digitalized. Therefore, investors can invest in small to large percentages of tokenized assets. For example, you can buy a 5% share of a tokenized painting or real estate property.

Blockchain presents a low-friction environment for investments. Asset tokenization facilitates the automated transfer of ownership while guaranteeing compliance. Tokenized assets benefit from reduced complexity and expenses, and the opportunity to invest with fiat money and P2P trading on regulated exchanges, thus improving liquidity.

Since token transactions and transfers are completed with Smart Contracts, the exchange process is automated and simple. Automation reduces the difficulties associated with purchasing and selling and requires no intermediaries. As a result, deal executions are simple and have low transaction fees.

Since asset tokenization allows for fractional ownership, virtually anyone can become an investor, allowing them to diversify their investment portfolio into assets that they could not previously afford.

We expect tokenization to continue to grow over the coming years and present a wide array of opportunities to a broad class of investors.

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What Can Be Tokenized?

Tokenization can be applied to virtually any asset. From artwork to real estate, sports teams to cars and traditional investments like bonds, venture capital funds and commodities.

Benefits of Asset Tokenization

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