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Tokenization 101: The Future of Ownership?
A building, collectible painting, or even a song, is represented by a certificate of authenticity or proof of ownership.
However, each of these are separate systems, many are still paper-based, with lengthy legal processes to verify historical records leading up to current proofs.
This is just one of the many things tokenization aims to solve.
It turns potential assets like art or real estate into digital tokens on a cryptographic network.
Major industries are interested in this because it introduces fractional ownership.
For instance, a $10 million painting can be divided into 10 million tokens, each representing a $1 share.
This makes traditionally high-bar assets accessible to everyday investors, not just institutions with big budgets.
This is currently being applied to more and more industries.
The asset, whether it’s a piece of art, a parcel of land, or a stock in a company, is represented as a unique token that can be bought, sold, or traded.
Platforms like RealT and Masterworks have become early pioneers in real estate and art tokenization, respectively.
When smaller pieces are sold off independently, without having to buy the whole piece, it helps create better liquidity.
More liquidity means you can find a market for something much quicker.
It’s where crowdfunding has found a lot of strength. Lots of people pool together their resources to fund something they feel passionate about.
Despite being an emerging concept when applied to the world of crypto, tokenization has garnered significant institutional interest.
Recent reports indicate it has the potential to unlock trillions of dollars in asset value.
Since crypto networks operate independently of stock market hours or bank operating times, tokens can also be traded 24/7, internationally.
Growing Institutional Interest
Major financial players are not just observing this trend but actively participating.
Global banking giants like JPMorgan, Citigroup, and DBS have already dipped their toes in the water, launching various platforms for asset tokenization.
Decentralized finance (DeFi) protocols are also entering the scene, a radically new form of finance that eliminates traditional intermediaries.
Projects like Aave and MakerDAO now accept tokenized assets as collateral for loans.
Established stock exchanges, such as the Australian Securities Exchange, are exploring the tokenization of traditional securities.
Similarly, the Reserve Bank of Australia (RBA) is actively researching central bank digital currency (CBDC).
The attraction is understandable. Tokenization offers a fresh avenue for diversifying investment portfolios while unlocking new revenue streams.
It’s a massive opportunity, not just a fleeting trend.
A Glimpse Into Real-World Applications
Here are a few examples of how tokenization is already changing the traditional asset landscape:
- Real Estate: The Aspen St. Regis Resort in Colorado has been tokenized, allowing fractional ownership. More on real estate tokenization here.
- Artwork: Masterworks offers tokens representing a share in paintings by artists like Banksy.
- Auctions: Sotheby’s Digital Artwork Auction.
- Commodities: Gold-backed tokens offer easy exposure to the precious metal without the need for physical storage.
- Equity and Bonds: In 2018 the World Bank issued bonds directly on a blockchain.
Smart Contracts: The Cornerstone Of Tokenization
“Smart contracts” are key to tokenization.
Essentially, they are automated contracts with the terms and instructions directly written into code.
In the context of tokenization, smart contracts define the rules surrounding the token’s issuance, trading, expiry, and ownership.
They can optionally automate revenue distribution, enforce holding periods, and even embed voting rights, all without the need for intermediaries.
These contracts, if designed well, offer more transparency.
Every transaction is recorded within the crypto network, providing a publicly-verifiable asset ownership proof, minimizing record-keeping corruption and conflicts.
Challenges And The Road Ahead
However, the potential does not come without challenges.
The existing regulatory environment in many countries, though changing, is not yet fully equipped to deal with tokenized assets, creating legal uncertainties.
Technological limitations, including scalability issues and excessive energy consumption of blockchain networks, also need addressing—this is where Splitchain comes in as a more efficient, simpler and scalable alternative.
Additionally, traditional asset owners need convincing about the value of turning their physical assets into digital tokens.
This will take time to reach the everyday person, unlike early adopters who take these opportunities earlier, before they become mainstream.
Carving Out A Path In The Tokenized Future
Zucoins and its Splitchain network have a unique opportunity with their fast, efficient, and cost-effective transaction capabilities.
By offering real-time transaction settlements and eliminating transfer fees, they can provide a user-friendly experience that aligns with the needs of today’s always-on digital economy.
The concept of fractional ownership is another key takeaway from the tokenization wave.
Splitchain’s support for up to 32 decimal places is a step in this direction, as it allows for precise micro-transactions.
It means institutions and users could tokenize their assets, subject to their local regulations, where they could trade smaller fractions of those assets directly on the Splitchain network, thereby democratizing access to higher-value investments.
The movement towards a more decentralized and transparent asset system is a core principle that Zucoins share and has growing momentum behind it, across many industries.
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All the best,
Peter & Rob
MyZucoins
Disclaimer: Of course, this is not advice, financial or otherwise. It’s also important to consider the risks and challenges associated with any potential benefits.