The biggest stories in the last 6 to 8 months in the blockchain and financial services industry include securitization of illiquid assets such as Venture Capitalist (VC) funds, real estate, art, and even tokenization of sports teams. In fact, asset valuations are going to be relooked, rethought and revamped by the introduction of blockchain technology in the industry as a whole.
Though the driving force behind this change is cryptocurrency and Blockchain, there has been an evolution into a more organized, regulated and transparent marketplace for both institutional and retail investors. From innovators and early adopters, the market has become mainstream, with financial institutions such as J.P.Morgan and Fidelity Investments move into this new market.
Why Now after 11 Years?
Though blockchain and Bitcoin were released to the market a decade ago, we see the present mass adoption of decentralization due to three major factors :
- The Bitcoin boom of late 2017, that brought in a wider audience to the blockchain and crypto-markets
- Movement of financial markets towards more open-source, transparent and financial inclusiveness.
- Institutions realized that Cryptocurrency and the underlying technology associated with it aka blockchain is cost-effective for the securitization of assets. This ensured that anything valuable could be converted into marketable security through security token offerings.
Which securities are marketable?
Traditionally very illiquid, the increased liquidity of Equity Tokens or ETOs would allow more participants to invest in the asset class. A larger pool of investors is a boon for venture capitalists.
Precious Metals (Gold, Silver, etc.)
The tokenization of precious metals such as gold, silver or diamonds increases the possibility of fractional ownership of the assets with the bonus of increased transparency in the conservative, opaque and illiquid market reserved for the wealthy.
Real estate tokenization enables investors to buy fractions of properties, and then earn capital gains and dividends similar to traditional investments. The tokenization ecosystem reduces entry barriers, compliance and transaction costs, with easier access to a larger pool of investment opportunities across the globe.
We have seen companies like Blockchain App Factory tokenize real estates worth $225 Million in a market estimated to be at $250 Trillion Market but offering only 2.5% Liquidity. For an investor, real estate tokenization ensures a diversified investment portfolio while property owners have increased liquidity with the presence of fiat and crypto-investors with no capital lock-ins.
Art and Luxury Goods
The art society is a very conservative sector and has been traditionally run by auction houses and galleries making investments into a segment limited to a few high net worth individuals (HNIs) leaving out a global pool of other institutional and retail investors. Conventionally, highly valuable as well as illiquid assets, exposure to next-gen technologies and investors, attract investments towards art and luxury goods.
Pegged against the traditional fiat-currencies to offset the market-volatility, stablecoins are a critical part of the crypto-ecosystem. There is a rising interest in fiat-backed cryptocurrencies and the expectations of increased rise over the next 12-18 months will ensure a reduction in transaction costs and processing time while also reducing the volatility in the crypto-market.
The crypto-world is talking about the tokenization of everything. However, it is important to note that the quality of assets is the key driver for wider adoption of blockchain in financial services along with cryptocurrencies.