As blockchain continues to disrupt various industries by allowing for asset digitization and the supporting infrastructure for people to own, transfer, and exchange digital assets between people, upstart businesses are becoming more frequent due to this new digital nesting ground. People continue to find new ways to make blockchain and tokenization work for them and for others who had previously not been able to invest.
What is Asset Tokenization?
Asset tokenization refers to the act of turning the ownership of a real-world item into a digital token. This can be done in various ways, but all result in the legally-upheld bridge between the physical asset (real estate property, vehicle, gold, etc.) and its representative token.
A token is a transferable unit of something. Deeds, titles, and certificates are all traditional versions of a “token,” a symbol or item that represents something else. A deed to a house represents ownership of that house. “Token” is used to refer to the digitally native asset which represents the real-world asset itself.
“Digitally native” refers to how the asset exclusively lives on the internet. Whereas traditional asset ownership like a deed, title, or certificate requires a piece of paper with legal approval, digitally native assets have ownership baked into the asset itself. “
Now with almost all major assets having the ability to be digitally owned, companies like the one quoted above are taking real estate investing to another level. Why not fractionalize real estate ownership? Breaking up a property into multiple tokens that can each be owned by an investor creates a lower bar to entry than ever before. Yet another way that blockchain technology has made asset investments more accessible. Well, companies like RealT who can create the opportunity to make real estate investing more accessible by demonstrating the ability to make this brave new world of blockchain technology produce another reason to start investing now.
Learn more about how all this works below!
What Benefits Does Tokenizing an Asset Have?
Tokenized Assets benefit from the new medium that they operate in.
Tokenization creates a more seamless exchange process. Because all tokens exist on the blockchain, and a blockchain is another word for a ledger, a lot of bureaucracy and headache associated with exchanging a valuable asset is automated and maintained by the blockchain. Each transaction that involves a token has sender, receiver, signatures, time-stamp, and amount-paid all baked into the transactions data. This transaction “receipt” is immutable, verifiable, and made available for all to see.
This immensely benefits both token issuers and token purchasers, by making purchasing the token as easy as possible. Because compliance can be “baked in,” token issuers can reduce the amount of friction to a minimum. Now, purchasing real estate property is no more complicated than signing up for Airbnb, Uber, or Robinhood.
Blockchains are ubiquitous. The Ethereum blockchain that we access in the U.S. is the same Ethereum blockchain that is found in China, Argentina, or Australia. Physical assets that were previously unreachable by international purchasers, are now made accessible through asset tokenization.
Because blockchains bring a global audience, assets are able to achieve larger marketplace participation than traditional siloed markets. For many assets, like real estate, liquidity is a significant obstacle that can lower the value of the asset, as the search for finding the right buyer may prove difficult. By opening up the market to a global pool of purchasers, illiquid assets can more likely find liquidity via increased market participants.
Asset tokenization is growing rapidly on the Ethereum blockchain. Ethereum has become a selling-point for issuing a tokenized asset; because most people are doing it on Ethereum, others will too. Ethereum has become the “Land of Tokens.” Ethereum, as a blockchain capable of running software, has the capacity to create markets that leverage many types of tokenized assets at the same time. The legacy markets of the Chicago Mercantile Exchange and the New York Stock exchange are siloed from each other. While the world at large is one single place of commerce, various exchanges have broken up and siloed the assets that are made available to trade. Ethereum offers a single global marketplace to exchange all assets.
Various financial services currently exist on Ethereum, that theoretically could accept digital assets in their functioning. MakerDAO, a decentralized bank, can enable an individual a collateralized loan, based on the value of their asset. If, for example, someone deposits their tokenized real estate to the MakerDAO smart-contract, they could take out a dollar-denominated loan that is collateralized by their real estate. This would require MakerDAO governance to accept that particular token as collateral, however.
Ethereum is a software-capable blockchain. This means that the digital tokens found on Ethereum are programmable. They can be made to behave in a certain way, based on various inputs, to create certain outputs. For example, in the custody of a tokenized property, an owner of the property can make conditional scenarios to where the token can change owners.
Examples of various programs are:
Dead Man’s Switch
If the wallet that holds the tokenized property makes no transactions for X-number of years, then transfer the token to a new owner.
Constant Market Price
Allow anyone to take control of the tokenized property, if they transfer X-amount of dollars to the token holder.
These are very basic examples of software’s capability of managing digital assets. The limits of software-based asset management are only the imaginations of those that can develop them.
What Assets Have Been Tokenized So Far?
– RealT Blog Post – ” Real-World Asset Tokenization: A New Form of Asset Ownership “