Tokenization can Increase Liquidity in the Market…
The global tokenization market, currently valued at a solid $1.9 billion, is estimated to grow to $4.8 billion by 2025 — at a CAGR of 19.5% in less than 5 years. What’s going to power this run? Why does this deserve our attention?
The primary mechanisms fueling the tokenization market include the benefits of blockchain technology in fraud prevention, the market needs to regulate the cost-efficiency ratio, consistent improvement of customer experience, and the growing need to comply with regulations. From buildings to art, the way we invest and manage assets could be fundamentally changed with the use of tokenization.
What is Tokenization?
Tokenization is essentially the process of converting rights or asset ownership into a digital token on a distributed ledger, i.e., a blockchain. The issued blockchain token would represent a real tradable asset. It is very similar to the conventional process of securitization, but with a modern twist.
Tokenization can be applied to several assets — such as bonds and equities, physical assets like real estate, valuable metals, and even intellectual property rights such as in music and art to its author.
What’s the appeal here? Why is the market being driven to adopting tokenization?
Benefits of Tokenization
The tokenization of physical and digital assets brings in a plethora of benefits to market partakers:
1. Increased Liquidity in the Market
By tokenizing assets (including private sectors or illiquid assets), the tokens themselves can be traded on a secondary market of the author’s choice. This allows access to a wider range of traders, which increases the liquidity of the assets. Thus providing investors more freedom and sellers with more value from the underlying asset.
The tokens created on the distributed ledger are essentially fractional units of the underlying assets — containing all the benefits and risks — thereby solving the ticket size problem.
Additionally, peer-to-peer transactions in tokenized bonds would remove any intermediary parties and make the transaction real-time and without any centralized third party. This will significantly open up the transaction world as investors would be able to exchange bonds between themselves directly.
2. Wider Geographic Reach
Tokenization provides no external barrier to the global population and market due to its inherent decentralized nature. It also lowers the minimum investment barrier required to participate. Moreover, the increased liquidity of security tokens can also reduce holding periods as investors will be able to exchange these tokens on the secondary markets, which are 24/7 and global (although probably subject to regulatory limits).
3. Faster and Cheaper Transactions
Settling a trade will take no more than a few minutes in a blockchain after securing a deal. It will also lower the cost of searching due to fewer intermediaries being needed. All of this will be possible due to the brilliant nature of smart contracts that’ll enable certain parts of the exchange process to be automated. This will not only lead to a faster deal execution but also lower transaction fees.
4. Easier Compliance
The immutable nature of Blockchains paired with real-time data will serve to assist regulation and enable transparency of the transactions being conducted. After all, blockchain tokenization will allow direct embedding of token holder’s rights, legal responsibilities, and the immutable record of ownership.
Thus, ensuring clarity and protection to the investors and other participants. Additionally, Tokenization will also improve asset-liability management through accelerated transactions due to this new and improved transparency.
5. Effective Management of Equity Rights
More value can be unlocked by programmatically embedding various distributed rights into an equity token, thus increasing standardization and interoperability.
Influence of Blockchain Tokenization
Asset tokenization truly holds a golden promise for the investing world, especially for bonds, and would substantially increase access and liquidity to small investors.
It would have the biggest impact on bringing liquidity to illiquid or otherwise non-transferable assets. It could also prove to be of extreme value on social media platforms like Youtube and Twitter, allowing users, publishers, and advertisers to exchange tokens amongst themselves without needing any middlemen whatsoever. At BlockX, we’re bringing this vision to reality. Join our token sale here to participate in the next revolution of our generation!