Unlocking the Power of Real-World Assets With Blockchain Technology
Blockchain technology has ushered in a new revolution in the finance landscape. With valuable features such as decentralization, transparency, distributed structure, and immutability, it has emerged as a game-changer for secure and seamless transactions.
Asset tokenization is one of the most significant benefits it offers. Tokenization closes the gap between traditional and digital finance by creating virtual representations of real-world assets. With this application, it is possible to tokenize every tradeable asset in the market, from diamonds to real estate and paintings.
Statistics show that the global tokenization market was valued at a whopping $2.3 billion in 2021. It is projected to cross the $ 5.5 billion mark by 2026 at an impressive compound annual growth rate of 19%. The humongous growth is enough to prove the popularity of blockchain technology in the asset market.
For a beginner, the concept of transforming real-world assets into virtual tokens might sound overwhelming. But blockchain technology is actually a great way to unlock the potential of physical assets. Let us explain the concept in detail.
Rethinking Real-World Assets (RWAs) With Blockchain Technology
RWAs are tokens representing traditional assets on the blockchain. These include tangible asset classes like real estate, gold, and fine art, and intangible asset classes like carbon credits and government bonds. Transfer of these assets is challenging for buyers and sellers as it entails lengthy procedures and endless paperwork.
Blockchain simplifies the process by representing real-world assets as digital tokens on a distributed ledger. Buyers and sellers can unlock their value and exchange them in real-time with minimal hassles. The concept simplifies trading and investment of asset-backed tokens within digital marketplaces.
Polymesh notes that blockchain is all set to disrupt over $800 trillion in traditional markets by bringing RWAs on-chain and into the DeFi ecosystem. With this, businesses will be able to leverage the DeFi ecosystem for their capital needs. They get the benefits of new means of financing and lower barriers to entry.
Steps of the Tokenization Process
Representing ownership of real-world assets using blockchain tokens is simpler than you imagine. It involves converting the value of a tangible asset into a digital form. Here are the steps of the process:
- Asset identification
- Legal and regulatory compliance
- Asset valuation
- Token creation
- Investor onboarding
- Trading and liquidity
Benefits of Asset Tokenization
Leveraging blockchain technology to tokenize assets can offer several advantages in the current business and technology landscape. While the concept was initially introduced by TrustCommerce in 2021 to substitute sensitive data with tokens, it has come a long way over two decades. Its benefits extend far beyond cybersecurity. Let us unlock them:
Increased Liquidity and Reduced Costs
The primary benefit of RWA tokenization is increased liquidity. Investors can leverage tokens to sell assets on the fly. Faster transaction settlement boosts liquidity by speeding up the buying and selling process. Tokenization eliminates intermediaries from transactions, which reduces the cost significantly. The benefits of cost-savings pass on to both buyers and sellers, and they get better deals in the long run.
Flexibility
Physical assets cannot be divided into fractions to sell them proportionally. For example, a seller cannot trade half of an apartment or a fraction of a company share. Tokenization eliminates the constraint as tokens represent fractional ownership that can be traded. The Swiss crypto bank set an example with the legal ownership rights of Picasso's famous artwork, "Fillette au béret". Over 50 investors purchased 4,000 tokens of the artwork at a price of 1,000 Swiss francs.
Security and Transparency
Security and transparency are other key benefits of RWA tokenization with blockchain technology. Tokens carry the inherent security features of blockchain to safeguard assets from cyber attacks and fraud. Further, transparency minimizes the possibility of counterfeit assets. Investors can verify the authenticity and history of assets, minimizing the risk of foul play.
Portfolio Diversification with Global Market Access
With tokenization, geographical barriers are no longer a constraint for investors as they can access global assets on blockchain platforms. It spells opportunities for portfolio diversification with cross-border investment and fosters global economic growth. Investors can also pick a broader range of asset classes for effective risk management.
The Bottom Line
Blockchain belongs to everyone and no one, which makes it a powerful technology. The blocks in the chain are like permanent file pages, making it impossible to manipulate them. Powered by this technology, asset tokenization has evolved over the years. It empowers investors to unlock real-world assets in more ways than they can imagine. Undoubtedly, it is an opportunity no savvy investor wants to miss out on.
