A Guide to Asset Tokenization

The world has endured a drastic change over the past twenty years. With the advent of new technologies, the way many business industries operate has completely changed and transformed digitally, into a whole new phase. So many new technologies have emerged in recent years that it is impossible to list them all. But one technology that plays a crucial role in this overall digital transformation of businesses, is Blockchain technology. It has become an essential medium that connects the physical world with the digital world. With its characteristics of trust, decentralized, distributed networks, and value, Blockchain makes it possible to connect physical objects to its digital representation. One of the industries that benefit greatly from these characteristics of blockchain, is the asset management industry.

Blockchain-based asset tokenization has the potential to help the industry with attaining tremendous growth. It provides investors with a secure platform to digitize their assets and exchange them in the most efficient and seamless manner. In this digitally evolving era, it is the right way to go, to gain maximum potential and profit for your asset business. But, if you are a beginner, you will be bewildered as to why you should tokenize your assets? What is asset tokenization and what does it offer? Let’s find out further in the article.

The idea of asset tokenization

Tokenization of assets emerged from the idea of how to convert real-world assets into a blockchain network. Tokenization refers to the process of converting real-world assets into digital tokens, by which the ownership of the asset is fragmented. The digitized tokens are underpinned by blockchain technology that verifies, records, and secures every transaction with the tokens. And, the asset information is protected with a chain of blocks encrypted with strong cryptography.

Here’s an example explaining how asset tokenization works,

Let’s say you have a real estate property worth $100,000, and you quickly need $20,000 out of it. This is where tokenization makes it easier. By tokenizing an asset, you can divide its value and ownership rights.

So, your property which is worth $100,000 can be divided into 100,000 tokens, where each token represents 0.0005% share of the property. 

When a user buys one token, it means they own a 0.0005% share of the property. If they buy 30,000 tokens they own 30% of the property value, and if they buy all 100,000 tokens, they become 100% owner of the property. This is how tokenization works. And with blockchain’s immutable nature, once registered, the ownership of the asset cannot be altered or erased.

What kind of assets can be tokenized?

• Real estate Tokenization

Any real estate properties such as commercial, industrial, residential properties can be tokenized. Like the above-mentioned examples, tokenization of real estate assets allows fragmentation of ownership, which paves the way for wider opportunities to increase market capital and participation of small-time investors. Tokenization contributes to the growth of the real estate sector to a larger extent.

• Tokenization of financial assets/ Private equity shares

Mostly, information about private equity shares and shareholders is manually accounted for on paper or spreadsheets. Each party consists of its own record, which is inefficient and brings in higher chances for error. Blockchain-based tokenized platforms make it efficient for the interaction of shareholders, maintaining records of information, and owners gain better transparency.

• Tokenization of Art

Tokenization of art means, a precious artwork can be converted to digital token shares and can be managed by a blockchain network. By tokenizing an art, a user can avoid intermediaries that charge a huge commission for displaying or selling the art. Also, the owners of the art have the opportunity to diversify their portfolio and invest in multiple shares of the art instead of a single one.

• Tokenization of precious metals

Volatility is a major problem when it comes to trading precious metals. Now, by tokenizing them with a blockchain-based network, the value can be divided into shares, and it opens up opportunities for small-time investors to participate.

Other than this, any other physical goods such as vehicles, commodities, loans, venture capital funds, etc., can be tokenized on a blockchain-based asset tokenization platform.

Related: How to Tokenize Real Estate Assets?

Why should you tokenize your assets? What are the key benefits?

• No geographical barriers

Tokenization of assets removes geographical barriers i.e, an investor can trade their assets from anywhere around the world at any time, at ease, at high-speed, efficiency, and security.

• Elimination of intermediaries

Tokenized asset platforms remove the involvement of third parties and allow investors to directly trade between themselves, making the transaction process secure, efficient, and cost-effective.

• Reduced risks

As mentioned earlier, the asset owner can diversify their portfolio by having the option of owning several shares from different shares with the help of tokenization. By this, they avoid the risk of investing all their money in a single asset and ending up with a loss.

• Improved Liquidity

Liquidity is a crucial factor in trading assets. Most investors face hardships in the industry because of illiquid assets. Blockchain-based tokenized platforms come with high-volume liquidity, which makes the trading process more efficient, effective, and seamless for the users.

• User Transparency

Blockchain is a globally distributed ledger that offers transparency to the users involved with the network. Every user involved in the trade can access the information and view the transaction history for a hassle-free experience.

How to tokenize your assets?

To tokenize your assets, there is a list of processes involved such as,

• Identifying the asset you want to tokenize
• Evaluating the asset value and confirmation
• Determining the tokenomics
• Generating Smart Contracts
• Deciding how you want to tokenize, i.e whether if you are giving equity or cash flow. 
• Reg D filing

Dealing with all these steps will take up a lot of time, and cost a substantial amount of money. With the ever-changing price values and the fast pacing digital revolution, you cannot risk a prolonged process. What is the better solution?

The fitting solution is to hire a well-experienced asset tokenization company. Such companies will offer tailor-made solutions for a tokenized asset platform that is legally compliant, feature-rich, and reliable. The platform will include several advantages that will help investors with quick, efficient, highly-secure, and seamless transactions. As they are readily available, they will deprive you of added expenses.

Blockchain-based Tokenization is already revolutionizing the industry and is set to be the future scope for a profitable business in the near future. Want to join the revolution? Get in touch with the early adopters of asset tokenization today!

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