Tokenization: the Emergence of a New Investment Opportunity
by Vanessa Jane Block chain consultant
How would you feel if you had an opportunity to own a fraction of a highly lucrative asset that is bound to bring big returns in the future? This might have seemed like a utopian dream before the advent of blockchain technology. Blockchain has made it possible to break large illiquid assets into small tokens, highly increasing the magnitude of liquidity. It also makes the portfolio of ownership wide and democratic.
What is tokenization?
Tokenization is the science of creating a local network with a specific asset class. A particular token represents a specific value. The value can be in terms of equity or as instruments of trade. The participants get fractional ownership of an asset. Since the value of the token is expected to be much lesser than the value of the actual asset, it can help diversify the portfolio. So a greater number of people are provided with relevant and profitable investment opportunities.
In today's context, tokenization can simply be described as the digitization of physical assets. The physical assets are represented using distinct identification symbols. These tokens can be transmitted and traded on digital platforms. The blockchain system generates tokens through smart contracts that act as the governing set of regulations for the token.
The two sides of tokenization
Initial coin offerings were the first manifestations of tokenized ownership in companies and product revenues. However, because of its highly unregulated nature, it turned out to be a major fiasco. However, it had opened the floodgates of blockchain being a reliable instrument of tokenization. Piggybacking on the success of initial coin offerings, security token offerings were born.
They are considered the holy grail of balancing between traditional securities and the new-world technology: blockchain. Today, security token offerings have trickled across multiple industries and the impact has been so pronounced that the stock markets of countries like Malta, Gibraltar, and Australia have considered embracing this new digital ledger for keeping their stocks with utmost security.
Benefits of tokenization
In short, tokenization makes investments both Democratic and global. It can be applied to any asset that is considered profitable but illiquid. Anyone with an internet connection and who meets the capital requirement becomes a potential investor. These tokens can be allotted and managed through smart contracts, and it can be automated to execute critical processes like dividend payout, which can result in reducing costs. Cryptographic encryption ensures high security and imputability. Every transaction that happened in the past is made public to everyone, and it reduces the possibility of fraud.
The delicate elements
It has to be understood that the smart contract is the core of your tokenization. If you get your smart contract wrong, it might result in the burning of old tokens and the issue of new tokens to the investors. It is also important to figure out what the token truly represents. It might sometimes be a special purpose vehicle share or a cash flow from the property in question. You will also need to consider the security regulations as specified by the Securities and Exchanges Commission (SEC). In addition to that, if it falls under the purview of the SEC, it is also important to have completed the KYC/AML/accreditation requirements.
Read Also: Tokenization on the blockchain – investing evolved
From the growing adoption of blockchain and the business becoming global, tokenization could be the way forward. There are a lot of companies that specialize in creating specific security token offerings and in the tokenization of real-world assets. You can get in touch with them to jump into the bandwagon of the investment method of the future!
Created on Feb 10th 2020 06:25. Viewed 330 times.