Tokenization Is Playing a Huge Role in Our Day-to-Day Lives

If you're not prepared for tokenization's influence on our day-to-day lives, now is the best time for you to learn about it! Tokenized assets have the potential to fundamentally alter the methods now used to invest in assets. In the process of tokenizing, an asset is represented by a blockchain token, most often a security token. 

In order to fully grasp why tokenization will become increasingly important and form parts and parcels of our daily lives, it is crucial to first understand the benefits that tokenization brings to us. 

Benefits of Asset Tokenization 

The token economy has the potential to bring about a financial world that is more efficient, inclusive, and fair, as well as transparent in asset management. Tokens may make the process of establishing, purchasing, and selling securities less cumbersome. Asset tokenization has several advantages for both sellers and investors, including the following. 

i. Enhancement of Liquidity

Tokenizing private securities or other inherently illiquid assets, like as fine art, may facilitate secondary market trade of the resulting tokens. In turn, a larger pool of traders may be drawn upon, increasing the amount of available liquidity. Furthermore, tokenized assets allow investors to have more flexibility, while sellers may profit from the liquidity premium. In other words, sellers might simply earn more money for their tokenized assets. Blockchain trade finance solutions may assist regulate liquidity by using tokenization. 

ii. Accountability and Openness

Asset tokenization also provides the ability to increase transparency. The security token has the ability to include token holders' rights and legal duties in the token itself. Token ownership of a certain asset might be traced back to an immutable record in the security token's database. 

Tokenization features like this have the potential to increase transaction transparency. As with any transaction, the parties involved, your rights and duties, and past owners of the token might all be clearly communicated via tokenized assets. Clearly, the advantages of tokenization closely resemble those of blockchain technology. 

iii. Improved Investment Opportunities

Tokenization may also play a significant role in increasing the number of investment possibilities available. New players in the asset management and trading environment might benefit from reduced minimum investment amounts and periods for tokenized assets. Because of the tokens' greater divisibility, investors may be able to buy tokens that represent disproportionately tiny parts of the tokenized assets.

There is no need to be concerned about large minimum investment amounts since orders are far cheaper and processing is much simpler. In addition, security tokens' improved liquidity may reduce the minimum investment duration. Investors may simply trade their tokens on the secondary market of their choice, although with regulatory restrictions, at any moment. 

iv. Cheaper, Faster Transactions

Tokenization is a key component of the blockchain's use since it opens the door to lower-cost, faster-transaction options. Token transactions may be made more efficient by the use of smart contracts. Smart contracts are algorithms built into a blockchain that do particular predefined actions when certain conditions are satisfied. 

Automation may assist reduce total administrative costs, especially when it comes to purchasing and selling goods. It is possible to speed up contract completion and reduce transaction costs by reducing the number of intermediaries involved. 

Examples of Use Cases of Tokenization

i) Real Estate 

In order to understand how tokenizing assets might be the first step in introducing the future economy, it is necessary to look at its applications in real estate. In 2019, the global real estate market was valued at USD 830 billion. There are still a large number of illiquid assets in the real estate market. 

In order to acquire ownership of a specific property, you must buy the whole property and deal with the greater entry barriers, large administrative expenses, and difficult transaction procedures associated with it. Although smart contracts for property transactions on the blockchain might have interesting uses in 

real estate, tokenization grabs the spotlight. 

A property's ownership might be divided up into fractions through blockchain tokenization, with each token denoting a specific piece of the property. As the number of people who can purchase and sell the tokens expands, there will be less friction between buyers and sellers, and hence fewer barriers to entry. 

Numerous interesting initiatives involving the tokenization of real estate assets have been sparked by the advantages of asset tokenization. 

The first tokenized real estate asset was a $30 million luxury property in Manhattan, New York. The Ethereum blockchain was used to tokenize it in October 2018. As a result, Mata Capital, a French asset management business, tokenized a Parisian hotel to attract investors. The hotel's issue of 26 million Euros makes it Europe's largest real estate tokenization project. 

ii) Artworks 

With the current craze of NFTs, you may no longer be a stranger to how exorbitant of value a piece of artwork can be. However, when it comes to owning an artwork by painters or artists may not be an easy feat due to its often high price. 

Tokenizing great art is an excellent illustration of how asset tokenization might assist the art market. In 2018, the worldwide art market was worth $67 billion, up 6.3% over the previous year.

By 2021, the internet art industry might be worth about $9.1 billion, according to a recent report. The contemporary art market, on the other hand, has not modified its commercial practices. 

With tokenization, it is now possible to own a portion of an art print in exchange for redeeming tokens that do not meet predetermined value criteria. 

A good example of this is TheArtToken (TAT), which provides tokens that reflect a stake in works of modern and contemporary art. The original artworks are kept in safe storage in Switzerland. 

Buyers and third-party marketplaces may more easily deal in fractions of artworks thanks to the tokenization of art. 

This raises several problems, such as a lack of transparency and restricted liquidity. In addition to addressing these issues, tokenizing artworks may make the art market more accessible to the general population. 

Finally, tokenization might aid in the creation of a permanent copyright database. With cheaper costs and more transparency for all parties in the ecosystem, as well as innovative blockchain business models, it is possible to assure liquidity. 

Conclusion 

The advantages of asset tokenization outlined here are clearly applicable to the generally illiquid asset classes. At the same time, the tokenizing of assets is ideal in cases where illiquid assets could gain benefits of better transparency and efficiency alongside reduced requirements of minimum investments. Real estate and the fine art industry are two of the most famous industries that have examined the implementation of tokenized assets. 

There is, however, no restriction on the sorts of assets that may be tokenized. Tokenizing real estate, art, commodities, and even virtual assets like stocks are all viable options. 

Finnax, an industry leader in Southeast Asia, has built a platform that uses blockchain technology to meet these objectives. There is more liquidity for investors and better financing options for homeowners via real estate fractionalization. 

The Monetary Authority of Singapore has acknowledged Finnax as the first platform to integrate real estate and blockchain. 

Owners and investors alike will benefit from the "fractionalization" of real estate transactions enabled by Finnax's end-to-end platform as a result of what the company dubbed "financialized real estate".

Visuals courtesy of PIXABAY & UNSPLASH