đź’°ASSET TOKENIZATION
And its real world implications
From Bricks to Digital Bits:
Transforming Assets with tokenization: Imagine owning a sliver of a Van Gogh masterpiece, a fraction of a prime Manhattan skyscraper, or even a share in a barrel of oil — all from the comfort of your phone. This is the promise of real-world asset tokenization, a burgeoning trend transforming illiquid assets into tradable, digital tokens on blockchain platforms. This revolutionary technology is poised to disrupt traditional financial models, unlocking hidden value and democratizing access to previously exclusive investment opportunities.
đź“Ś What is Real- world Asset tokenization?
Tokenization has changed how we interact with tangible assets, it is safe to say that we are in an era of Tokenization of everything.
Real-world asset tokenization essentially converts physical assets like real estate, artwork, commodities, and even intellectual property into digital tokens traded on blockchains. These tokens represent fractional ownership of the underlying asset, enabling easier divisibility, increased liquidity, and enhanced transparency.
Tokenized real-world assets have been a growing segment of the DeFi ecosystem, with RWA total value locked sitting at ~$5B in December 2023, according to DefiLlama.
In fact, BofA Global Research estimates tokenized assets to become so ubiquitous that “token portfolios” will simply be referred to as “portfolios.” Why? Consumers might open an app to check the real-time market value of portfolio holdings, which include tokenized dollars, stocks, corporate bonds and interests in a private equity fund and commercial building that’s located on a different continent. Within the same app, they may sell 47.62765% of their private equity interest at 5:15pm to 20 different buyers through a liquid secondary market with 24/7 real-time settlement.
Why Tokenization?
- Fractional ownership
Democratizing access to traditionally high-barrier assets like real estate and artwork - Integrity
Verifiable onchain transactions reduce counterparty risk - Liquidity
Near-instant asset movement across interoperable trading environments - Utility
Reduced costs via automated workflows and shared databases - Transparency
Increased auditability around previously opaque processes
How to tokenize real world tangible assets?
↗ Define Your Asset and Structure:
Choose your physical asset, real estate, art, commodities, or even unique items. Consider holding the asset through a Special Purpose Vehicle (SPV) or similar entity for token issuance.
↗ Navigate the Legal Landscape:
Understand legal and regulatory requirements specific to your asset class. This includes securities laws, ownership rights, and AML/KYC compliance.
↗ Choose Your Technology Platform:
Select a suitable blockchain platform for your project. Develop a smart contract defining token creation, ownership, transfer, and functionalities.
↗ Craft Your Token Offering:
Define token parameters (total supply, decimals, special features). Craft a clear project outline, tokenomics
explanation, value proposition, and ownership rights.
↗ Reach Potential Investors:
Develop a compelling marketing strategy to attract investors. Highlight benefits like increased liquidity and fractional ownership. Build a user-friendly platform for registration, KYC, and token sale participation.
↗ Launch and Manage Your Token Sale:
Determine your sale structure (ICO or STO, considering regulatory requirements).Launch the sale on your chosen platform and manage investor interaction effectively.
↗ Post-Sale Management and Transparency:
Ensure transparent asset management with regular updates on performance, maintenance, and changes. Establish buyback/redemption mechanisms for investor flexibility.
↗ Maintain Ongoing Compliance and Reporting:
Regularly audit ownership and financial health for long-term sustainability and investor trust.
“The industry needs standards and interoperability. Different financial market infrastructures (FMIs) and consortiums are working on the same problem in parallel, but with no clear interoperability or standardization. This leads to silos in initiatives today. As DLT adoption gains critical mass, there will be more drive to standardization and interoperability.” Citi bank
TOKENIZATION ECOSYSTEM MAP
CONCLUSION
Tokenization is just one of many DLT/BCT applications but could lead to new, and more efficient, primary and secondary markets for financial and non-financial products. In the not-too-distant future, portfolio holdings may also include interest in a diversified blue-chip art fund, carbon credits, or tokens that provide holders with a call on cash flows and power smart contract-enabled blockchain operating systems. And though we are only in the first innings of a major change in infrastructure and applications, tokenization can reshape how value is transferred, settled and stored.
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