The widespread establishment of blockchain and its co-relatives like Cryptocurrency, decentralised finances, developing decentralised ecosystems, etc, have opened up space to provide transparency and ownership while also bubbling around Asset tokenization on Blockchain. The digital asset management systems have proven to be a scalable choice with security. Asset tokenization on blockchain now is a trend that's in high adoption and is blooming with an expectation to meet $16 trillion a market capital by 2030.
Tokenizing real assets is the digital transformation of real-world assets, be it anything in this universe you own, can be made as a digital token representing your asset with trading abilities, and also add up other functionalities. Real World Asset Tokenization Services are gaining massive traction among the investor panel in the recent time. Meanwhile Asset tokenization on decentralised networks gives a sense of Accessibility, transparency, and security for the same.
Let us get into the details of Asset Tokenization Blockchain, how it works, the tokenization process involved, benefits, monetary opportunities, and future.
As the crypto ecosystem and mainstream finance are towards a mission to benefit traditional assets and open up new avenues the field of digital asset tokenization has been brought to the spotlight. Asset tokenization refers to converting real-world assets as digital representations on the network with more democratised access and efficient transactions, providing liquidity to illiquid asset classes through blockchain. The assets are extended with the right to be held, sold, and traded on the network. These tokens represent a stake of ownership of the asset which can be easily divisible allowing fractional ownership enabling people to invest in the asset very directly, peer-to-peer. The traditional assets that require middleman interaction are eliminated here while security and transparency are very open.
1. The onboarding process of tokenized assets on the Platform starts with the KYC and document checks where the investor goes through the workflow and ensures that the documents are in place. The investor will also have to submit the required documents for the check. Post qualification the issuer is an authorised compliance agent who approves the investor. Only qualified investors are allowed to purchase and trade security tokens during the lifecycle of these securities. They will also be able to subscribe to the securities by digitally signing. The token issues are open to accept both fiat and tokenized cash in the platform. The space also has a calculator that helps in providing the total cost of the securities based on the exchange rate and the additional fees that are inclined.
2. With the investor having a clear idea of the onboarding process, the next step of the agent and issuer is to deploy the token smart contract on the network. Inputting the basic requirements and information such as the wallet address, smart contract ownership, eligibility rules, compliance, and identity storage are brought in. The issuer can use the same compliance which encourages the issuer to tokenize additional assets with the same storage identity.
3. After the token is deployed the issuers can allocate the token to the investors and bulk operations can also be implemented. Here on the back end the identity smart contract automatically generates and the token is sent to the investor's wallet directly to get them to the identity storage.
Here let us take real estate tokenization as the asset that has to be tokenized on Blockchain. These are the few deliberate steps to follow for the tokenization of real-world assets.
1. The foremost step is to choose the asset that you want to tokenize on the blockchain. This asset can be fractionalised into shares. For which you are required to create a legal entity to exist solely. Through asset tokenization on blockchain, the shares of real estate assets are represented as an entity, which entitles the assets, while opening up different opportunities to bring in versatile income through renting, retailing, etc.
2. The next step is to implement smart contracts. To track balance, payout, issuance, and other benefits associated with digital tokens, smart contracts could do it at ease. These smart contracts are decentralised programs built on blockchain crafted to meet specific functions and run transparently, through auditable codes. Tokenizing real estate properties with smart contracts will have the capacity to handle critical functions in terms of rental income, implementing governance decisions, voting rights, payment expenses, and maintaining the asset effectively.
3. Going further let's go with token distribution and sales. For a digital token, smart contracts are necessary and the next thing to do is to be sold to the investors. This can happen with private sales, open sales, or public sales, or that can also be a combination of the two that uses whitelist models like the other crypto model. Through fractionalization, the tokenization concept is creating a bigger and more liquid asset in the market.
4. Next is asset management and governance of the token. As these tokenized assets can be sold, held, and traded the importance of management is a baseline for real estate. Where the asset would be rent, physical maintenance, tenant relations, property improvement, etc. While this is happening in the physical space, this can be transformed in the digital arena as well. The owners are given equal control of the token on the blockchain. Eventually being part of the community, the voting rights on decision-making, regulations, etc., are handed with chartered and encoded smart contracts associated with the asset.
5. The next comes secondary market trading. The token represents shares in the real estate property that are allowed to be traded on the secondary market after their launch. This benefits illiquid assets to gain liquidity and maximise it eventually. This provides assets with additional functions, where unsellable property gains traction through asset tokenization on the blockchain, and being flexible and accessible within the boundaries expands its buying potential with great price points.
Tokenizing assets required to meet significant financial support, technical hows, and other requirements. While put together this new evolving financial instrument is a great transformation for traditional asset management.
High-value assets like real estate, artwork, physical commodities, and precious metals like gold, diamond, nickel, etc., are tangible assets that are a traditional classification that has a demand-oriented, substantial capital investment. These traditional assets have a substantial potential to grow through tokenization. Also here real estate stands as the largest investment market in digital assets with a global value of US$637.8. Despite being one of the vast illiquid asset types the capital investment and enduring a long and costly transaction process despite the higher capital investment opportunities. Also, the traditional investment in real estate revolves around hefty capital when you acquire property outright through public or real estate investment trusts (REITs). This focus on a long-term investment choice, while this can be cut down along with prediction on potential risk can be moved out with tokenizing RWA.
Intangible assets include carbon credits, renewable energy, intellectual property, etc. Their potential opportunities are unlocked with the help of Real Asset Tokenization on blockchain with the ability to track, trade, and transact. This also improves the market efficiency of the assets. To trade assets like these over the counter is complex and involves a lot of formalities, like private transactions, intricate financial arrangements, etc. which closes the door for small-scale investors. With tokenization, it opens up assets more accessible and transparent for easy tracking and trading. Meanwhile intellectual property rights like patents, copyrights are also complex in the actual world while tokenization simplifies and creates a safe environment for licensing, and royalty payment and also provides fractional ownership for itself.
The process of creating tokenized financial assets involves digital representation as assets on the blockchain network which has and operates on distributed ledger technology. The financial asset tokenization includes equity payments, bond tokenization, private credit tokenizations, fun tokenization, and much more can be prominently tokenized by blockchain technology. This makes the financial asset more accessible in a wider range contributing to the investors and providing more affordable financial instruments. While the tokens are more easy to trade and access to a wide range of investors, they also get access to Defi applications like on-chain lending, borrowing, and staking which unlock more beneficial use cases as investors.
Fiat currencies have an increasing popularity for being tokenized and blockchain technology has given a re-definition for common fiat currencies with stablecoins and central bank digital currencies (CBDC). We have a few fiat-based stable coins like USDT, USDC, DAI, etc., and their main objective would be maintaining steady prices, pegged to fiat currency like US dollars. The volatility of stable cin is high when compared to fiat, they can actively create price stability through collateralization. So here the issuers hold an equivalent amount of pegged currency, that backs stable coins with real money. Today the USD pegged token has a great market value in the RWA tokenization market.
Asset tokenization on blockchain is leading the way to new market opportunities in almost every sector, with the ability to tokenize assets the traditional investment methodologies are revamping and revolutionising.
Tokenizing real estate properties like buildings, monuments, infrastructural designs, antique pieces, land, rental space, etc brings in wider opportunities for investment and growth. Eventually, it allows fractional ownership, which is one of the most popular aspects to gain global attention on real estate tokenization services.
Art was the very first niche to explore tokenization, from visual arts to digital art, and its branches have the potential ability to be tokenized. This has also made it possible for investors to own a fraction of expensive artworks or collectibles. Providing an opportunity for a broader crowd.
Tokenization can provide liquidity to the traditionally illiquid private equity market where the shares can be converted into digital assets that are easy to track and trace, while also secured by the layers of security in blockchain.
Commodities including renewable, and nonrenewable resources like gold, and oil are also being tokenized to allow for fractional ownership, more accessibility, visibility, and transparency over the asset.
Tokenization of fiat is also a new space to uncover the possibility of tokenization. This has been nurtured in space.
With the democratisation of property, the inaccessible market is now becoming more accessible. Retail investment is one such avenue with growing interest among retail investors. This provides a versatile portfolio for investors.
The appreciation in price, which is the profit gained through an increase in the value of the token over some time, is a similar way of revenue earned as in the case of traditional investing. Market speculation is also another opportunity to multiply the revenue stream. Where this is done by the participation of a few investors who make short-term investments by trading assets to gain profit amidst the fluctuation in the market.
There is a token that distributes a part of profit based on the portion earned as dividend tokens, the token holder gains an additional benefit like the one receiving from the stock value increase. While there are also cases that the value of the underlying asset scales up, the dividend is gained for the same as the token value increases, and the income opportunities are maximised.
Through governance tokens, where the holders get the ability to vote for or against the regulatory updates of the platform and ecosystem, they provide investors a direction towards the growth of the project and potentially increase the token value.
Token utility and usage also have a great potential to scale up the token value within the ecosystem. There are chances for the token value to increase, grow, and multiply based on the adaptation. Say a token used to govern in DeFi in a platform can appreciate its value as the platform becomes more popular.
The resale mechanism is the key profit policy for investors holding assets by selling in the secondary market palace to other investors, eventually, the value of the token is based on the demand that prevails in the market.
Rewards is the main revenue model here. Through tokenized assets, Staking rewards and yield farming opportunities can be gained for the investors. By holding the token in the wallet and providing liquidity of the same, through decentralised exchanges, investors earn additional rewards.
The token represents ownership of the asset and the investor benefits from the underlying asset’s appreciation and the income generated through it. When a real estate property share is tokenized, the investor is entitled to gain the rental income, and also benefit from the value of the increase in the property.
These are not just the possible revenue opportunities that are up for investors but they also explore other opportunities for sourcing income, which will be based on the revenue model, type of project, token, and other aspects revolving in and around the projects.
With real-world asset tokenization, there are several benefits that you can extract while replacing Asset tokenization for Traditional transfers.
The traditional method of transferring assets involves a lot of involvement from third parties like banks, brokers, lawyers, financial institutions, etc. while blockchain eliminates the need for third parties and cuts down the major operation-orientated cost that is involved. Thereby enabling the asset to have low transactional cost.
Blockchain’s main quality transparency is effectively achieved, as all its records are maintained in the public record or ledger, and the stakeholders can verify and audit the transaction independently. The whole process of tokenization and others in coherence are on chain events that are open to track.
Any tokenized world asset, say it be real estate, metals, artwork, etc can be divided and fractionalised into small units as tokens that can also be traded and eventually inviting all small-scale investors to make their investment and experience the freedom of democratised access.
The asset transfer on the blockchain, including cross-border transactions, is quick and easy while the traditional form will take days and months to transfer. This reduces the waiting time and also cuts down major labour.
The decentralised nature of blockchain and cryptographic hashing is more secure, especially around malicious attacks. The transactions once entered into the ledger are immutable and no single entity can be altered from the past transactions.
The broader the access gets, the broader the visibility. Tokenization is open to the global market and breaks demographic restrictions, subject matters, languages, etc. while meeting the regional rules and regulations is more than enough.
When you planning to get started with Asset tokenization, it is very important to
1. Understand the niche that you choosing, to gain clarity on your target investor pool.
2. The sector that you want to explore or how innovative you are going to utilise in your day-to-day activities.
3. Following that it is important to have clarity around the goals or milestones you aiming to achieve through asset tokenization.
4. Having a defined road map on the same can also be very helpful around the same.
5. Going forward, your investment pool for tokenizing should be defined.
6. To tokenize your real-world asset, choosing the right developer team and the network is equally important.
When choosing your Development partner ensure they have good updated knowledge and experience in what you want from them. With a clear definition of your goals, it's easy and more convenient to take to and explain your requirements.
At BlockchainX we do various blockchain development services. In our past 7 years of experience, we have been continuously evolving and learning the new aspects of blockchain and decentralisation. Where they don't just stay as theories but also have implemented many projects which today have a great reputation. We also specialise in asset tokenization.
Now that with so much input and detailing on Asset tokenization on Blockchain, there are a lot of aspects of this blog that were useful, while also tailoring informative content on trending topics, our expertise in asset tokenizations is also nurturing. Connect with our experts today to get your real-world asset tokenized and gain more traction in global endeavours.
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