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Here, we are going to look at one such dynamic that has attained immense value and potential with the onset of blockchain – asset tokenization.
Blockchain technology is certainly gaining drawing attention to a number of fields and applications. By enabling a secure platform for digital assets to create and exchange value, it has startups and companies exploring the field in a number of dimensions, with asset tokenization being one with the highest potential for the rapid growth.
Asset tokenization is the art of converting assets, physical and otherwise, into their equivalent digital counterparts. The digital parts are represented through security tokens that are raised on a blockchain platform. The creation of a digital token enables exchanging the value of a physical asset by recording each interaction on a blockchain network.
This has opened up a spectrum of possibilities from finance to real estate and from art to commodities. Startups and companies are now scrambling to different ways of tokenizing physical assets on the blockchain. Research suggests that asset tokenization is bound to create huge potential in a number of fields in the upcoming years.
Let’s take a look at some of the key stats pertaining to tokenizing assets.
An investigative study performed by a Swiss tokenized platform reveals that the market of security tokens has already boosted from a volume of $65.59 million in 2017 to a total volume of $434.95 million in 2018.
Another study reveals that by 2024, the market of security tokens will much likely exceed that of cryptocurrencies and is expected to reach $1.5 trillion in European Union (EU).
A report by the World Economic Forum (WEF) suggests that by 2027, 10% of the global GDP will rest on blockchain technology. Following this methodology, this study projects that the market of tokenized assets will be worth nearly $24 trillion, in financial assets alone, by 2027.
Asset tokenization is a broad term that ranges from tokenized property to art pieces. One of the areas that can gain massive value is real estate.
Real estate tokenization enables dividing a physical property or land into equivalent security tokens and further raising it on a blockchain network. This further ensures that everyone can have access to the prime real estate properties as an individual can even invest in a share of $1000 in a property that is worth $150,000. Blockchain has created possibilities of fractional ownership with thousands of investors becoming a part of a real estate asset without any hassle.
Furthermore, the scope of buying and selling security tokens representing real estate assets to a global investor community opens up instant liquidity. Tokenizing real estate makes buying or selling an asset as simple as trading company shares on the stock market.
It is predicted that real estate will attract $4.2 trillion in revenue through tokenization by the year 2025.
Blockchain tokenization has even opened up new dynamics for industries we never thought could be tokenized. This means that a piece of precious artwork can be converted into digital tokens and be further managed on a blockchain platform.
This induces transparency into the artwork’s curation and pricing. It also removes intermediaries like auction houses that charge a huge commission to showcase and sell the art. Tokenization also gives an individual a way to diversify his portfolio such that he can invest in multiple pieces of artwork instead of a single one.
Tokenization of financial assets like company stocks, equity, or VC funding facilitates greater flexibility, rapid settlements, and an efficient process. It facilitates investors to diversify their stock portfolio by allowing them to invest in multiple stocks and indexes. It further allows inclusiveness as any individual can buy or sell a percentage of a high-valued stock by enabling fractional ownership.
Tokenization enables two traders to directly connect with each other by removing financial intermediaries in-between. This further reduces settlement time and also cuts the added expenses that go towards paying middlemen. Settlements on a blockchain-enabled platform can happen in seconds instead of days. Furthermore, assets that are typically illiquid, like VC private equity, can now be sold as digital tokens on an online secondary platform.
It is true that the tokenization of assets on a blockchain network can revolutionize industries. Research conducted on the market and the future of tokenization also proves the same. In the next 5 years, we are likely to see mainstream adoption of blockchain-enabled tokenization in a number of sectors.
About the author: John Hopkins is a content manager at a tokenized real estate platform Cocoricos.io. He has big experience of working with startups and consulting blockchain-based projects.