The burgeoning token economy is currently revolutionizing various industries, with asset tokenization standing out as a prominent buzzword. This concept involves digitizing tangible real-world assets such as company shares, artworks, and real estate to make them more accessible to investors. While investing in these assets holds great promise, it’s hindered by a significant challenge: lack of liquidity and a lengthy transaction process.
Asset tokenization offers a solution to this problem by bringing various benefits and fostering the democratization of investment. Through tokenization, buyers can seamlessly and immutably trade these assets, and in return, investors receive cryptocurrencies. The market’s growth potential is remarkable, with forecasts suggesting that by 2029, the digital real estate ownership industry could reach an astounding $3,894 billion.
In this article, we will delve into the intricate world of real-world asset tokenization and explore how to tokenize tangible assets. We will focus specifically on real estate asset tokenization, shedding light on its advantages and the challenges it presents within the broader context of tokenizing real-world assets.
What is real-world asset tokenization and how does it work?
Real-world asset tokenization is a process of transforming physical assets into digital tokens, such as real estate, artwork, or company shares, and these are recorded and traded on the blockchain. It works by representing the value and the ownership of the digital assets. Smart contract functions most of the work, It turns real-world assets into digital assets. Certain conditions are coded into contracts and shared with a blockchain network. These smart contracts function when certain conditions are met.
The process typically begins with the selection of specific assets for tokenization. Once chosen, the asset is appraised, and its ownership rights are legally structured. The implementation of smart contracts is the linchpin in ensuring the integrity and efficiency of real-world asset tokenization. These automated contracts facilitate the seamless transition of ownership, promoting trust and transparency. For instance, Fantom, a leading smart contract platform, offers a robust foundation, bolstering the security and scalability required for the flawless execution of tokenization processes. Each token represents a portion of the asset, and its quantity typically corresponds to the fractional ownership of the real-world asset.
Steps for real-world asset tokenization
Step 1 – Choose the asset representation model
Step 2 – Model the asset
Step 3 – Review of the analysis and evaluation of code’s technical and security aspects
Step 4 – Deployment of the tested code
Step 5 – Post-tokenization management
Step 6 – Final process includes issuing the tokenized real-world asset
Classifying asset tokenization types
- Real-estate tokenization – Making real-estate investment accessible through legally compliant digital tokens.
- Art tokenization – Giving fractional ownership of existing artworks made by creators.
- Stablecoins – Provides stable value and allow exchanges to get your hands on the needed liquidity
- VC fund tokenization – Helps to keep track of your investment funds without the need for an intermediary.
- Illiquid asset tokenization – Tokenizing the real-world asset without any loss of value with an increased trading volume.
- Mining repository tokenization – Tokenizing a mining repository, a notably illiquid asset, represents a prime opportunity within the industry of asset tokenization.
What are the benefits offered by real-world asset tokenization?
So far, we have seen how real-world asset tokenization works and its market growth. In this section, we will list the benefits of tokenizing real-world assets. Tokenizing real-world assets benefits both asset owners and investors. These benefits include enhanced liquidity, improved accessibility, heightened transparency, and increased transaction efficiency.
Opening up new pathways for all
Real-world asset tokenization is the proverbial “key” that unlocks enticing opportunities. This innovative approach extends a welcoming hand to a demographic, including individuals with modest financial resources. It enables them to claim a stake in valuable assets such as real estate or exquisite artworks. This demarcation of investment is a transformative force in the financial landscape. It empowers a diverse range of people to share the wealth and benefits traditionally enjoyed by a select few.
The process of tokenizing real-world assets offers a substantial opportunity in terms of cost efficiency. This cost-effectiveness stems from the streamlined and automated processes inherent to blockchain-based tokenization, reducing the financial overhead typically associated with asset transactions.
Enhanced liquidity and accessibility
Tokenization has the remarkable ability to transform traditionally illiquid assets into accessible and highly tradable entities. It broadens the scope of investment opportunities, making assets historically restricted to a select few accessible to a wider audience. This democratization of investment promotes inclusivity, allowing a more diverse range of individuals to own fractional shares of valuable assets, ultimately expanding the horizons of investment possibilities.
Flexibility and increased speed
One of the key advantages of real-world asset tokenization is the flexibility it introduces to the trading landscape. Unlike traditional markets with limited working hours and extended settlement periods, tokenization enables 24/7 trading. This agility circumvents the constraints of conventional trading schedules, facilitating swift and efficient transactions. Investors can buy, sell, and trade their tokenized assets conveniently, transcending geographical and temporal barriers.
Transparency and trust
The transparency inherent in blockchain technology fosters trust and accountability among traders and investors. Every transaction, ownership record, and historical data are securely and immutably stored on the blockchain. This transparent ledger instills confidence in the integrity of the asset’s history and ownership, mitigating the potential for fraud or disputes. Consequently, participants in tokenized asset markets can engage with a greater degree of trust and assurance.
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What is the market growth of real-world asset tokenization?
According to a report from the digital asset management firm 21.co, the market for asset tokenization could reach $10 trillion in a “bull case” and $3.5 trillion in a “bear case.” It is predicted that tokenization of real-world assets will create a $16 trillion market by 2030.
As exemplified by Bank of America in a recent report, tokenization has the potential to reshape the current financial infrastructure, enhancing efficiency, cost reduction, and supply chain optimization.
The World Bank says that around 1.7 billion people do not have access to financial services. Due to the lack of access to financial services, poverty and economic vulnerability have increased. Tokenization offers a potential solution to this issue by breaking down barriers to entry, thus providing investment opportunities to a broader range of individuals, including those currently excluded from traditional banking services.
Carbon credits are one of the promising use cases of tokenization, which not only increases liquidity but opens new revenue streams. Its major support goes to the reduction of carbon emissions into the atmosphere and contributes to a more sustainable future.
In conclusion, tokenization is revolutionizing real-world assets, from paintings to intellectual property. Real-world asset tokenization is not merely a trend but a paradigm shift in how we perceive and interact with investments. It democratizes opportunities, enhances efficiency, and augments accessibility, ultimately fostering financial inclusivity. As we move forward, the potential for real-world asset tokenization to continue reshaping the financial landscape and democratizing wealth is not just exciting; it’s revolutionary. The doors to this new era of investment have swung wide open, beckoning all who seek to participate in this groundbreaking financial journey.
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