The tokenization of assets refers to the process of issuing a blockchain token (specifically a securities token) that digitally represents a real tradeable asset – in many ways similar to the traditional process of securitisation, with a modern twist. These securities tokens are created through a type of initial offering known as STOs.
STOs can be used to create digital representation of an asset, meaning a securities token could represent a share in:
1) Real Estate 2) Shares in a company 3) Participation in an investment Fund
Any type of financial asset can be tokenized, including:
1) P2P lending 2) Remittances/Money Transfer 3) Intellectual Property 4) Fund
Benefits of Tokenization
From art to buildings, the way we invest in assets could be about to fundamentally change with the arrival of tokenization. The act of tokenizing assets threatens to disrupt many industries, in particular, the financial sector. The tokenization of assets, involving the digital representation of real assets on distributed ledgers or the issuance of traditional asset classes in tokenized form, is a core part of this technology’s revolutionary potential. Though the technology and practice of tokenization are nascent, its theoretical benefits include: efficiency gains driven by automation and disintermediation, transparency, improved liquidity potential, and tradability of assets with near-absent liquidity; and faster and potentially more efficient clearing and settlement. It suggests a reconsideration of core financial market activities, from trading, pricing, and liquidity of securities, to processes such as clearing and settlement, and activities such as repo and securities lending.