Despite having a wealth of creative use cases, blockchain technology has not yet achieved mass adoption. That may change with the emergence of one of its most promising applications to date – the tokenization of real-world assets. Some forecasts are predicting that this nascent market could grow so quickly that it will exceed that of the traditional cryptocurrency market by the end of next year. That’s because its potential is incredible, with the ability to create exciting new opportunities for both everyday investors and entrepreneurs, as well as traditional institutions.
Real-world asset tokenization refers to a new kind of ownership model that takes advantage of digital asset technology. Instead of traditional stocks and shares, it’s possible to issue digital tokens that represent a physical, tradeable asset, with ownership recorded immutably on a blockchain ledger. The great thing about it is that just about any kind of asset can be tokenized, including currency, precious metals, stocks and shares, art and more.
Tokenization will mean that, for the first time ever, it becomes possible to trade any kind of asset on a decentralized market, allowing everyone to get involved and become an investor through fractional ownership.
One of the main advantages of asset tokenization is that it simplifies real-world trade. For instance, precious metals like gold can easily be traded between individuals. By acquiring gold on the blockchain, there’s no need to physically move the asset from one location to another, meaning transportation costs are eliminated. Instead, people just trade tokens that are provably linked to the gold in question, which will remain in the same location where it’s stored long term. As a result, traders will be able to acquire gold at a price that’s much closer to its spot price.
New Opportunities
With these benefits, it’s no surprise to learn that tokenization is already taking hold in many industries. There have been stories of athletes tokenizing their contracts, while FC Barcelona has begun tokenizing its club membership with “fan tokens” that give holders the right to participate in polls regarding many of the club’s decisions.
Perhaps the best use case for asset tokenization is the real estate industry, which has traditionally always been the preserve of rich investors. With tokenization, it becomes possible to take a $1 million building and essentially split its ownership into “shares”. One million tokens representing a one millionth share in that building can be created and then sold on the open market, allowing numerous people to own a part of it, and receive passive income from its rent.
Already, a number of projects have begun exploring this particular use case. As far back as 2020, the French fintech firm ID Distribution said it was partnering with Groupe JRI on an initiative to tokenize a portfolio of five properties in Paris worth a combined $78 million. An even more ambitious project is Metatime’s upcoming MetaRealEstate marketplace. Metatime, an emerging Layer-1 blockchain project based in Turkey, is planning to create a global marketplace for tokenized properties, including homes, retail spaces and hotels, where anybody will be able to buy a small or large share of real estate. In the case of a hotel, token holders would benefit from regular dividends – essentially their share of the hotel’s profits. Alternatively, people could invest in the fractional ownership of different properties to diversify their portfolios while earning a share of the rental income they generate.
It’s an opportunity that’s sure to appeal to the masses. Real estate is often considered to be one of the smartest investments, but very few people can afford to buy a property themselves. Fractional ownership will make the real estate market accessible to just about anyone, meaning more people will have opportunities to create wealth.
Democratizing Private Equity
Tokenization won’t just benefit investors but also entrepreneurs. It has traditionally been very difficult for entrepreneurs to access private equity because they have always been limited to only a few accredited investment firms. By issuing tokens, entrepreneurs can tap into a much broader base of investors. It will open a lot of doors for new startups looking to access capital.
By tokenizing private equity, companies can also improve the way they communicate with their investors. Their financial information can be hosted publicly on the blockchain, ensuring full transparency. Additionally, compliance can be written into smart contracts, ensuring that tokens can only be sold to those who have undergone KYC checks.
As interoperability between different blockchains increases, the marketplace for tokenized assets will attract increased liquidity. Settlement times will be greatly reduced, and regular dividend payments can be set up automatically. Further, the process of raising equity can be accelerated too. In many countries, the process of incorporating a company can take months and cost thousands of dollars. By digitizing these processes on the blockchain, they can be streamlined much more efficiently.
It’s Time For Tokenization To Take Over
As real-world asset tokenization becomes more common, it will transform the investment industry in ways that were previously unimaginable. It will lead to more opportunities for investors and greater autonomy for entrepreneurs as they benefit from new ways to access capital. With more ways for more people to invest, more capital will arise, leading to a new era of growth in every industry that embraces it.