March 28, 2024

What is tokenization?

What is tokenization?

Asset tokenization – is the concept of using blockchain technology to issue tokens thatrepresent a real asset in digital form.

Such tokens can beregulated financial instruments (stocks, bonds, loans and funds), tangible assets (real estate, works of art, precious metals) or intellectual property (copyright in works).

How does tokenization work?

Tokenization is used to transfer value withoutinvolvement of a third party while maintaining confidential information. Sending data in the form of a sequence of characters that lose value outside a strictly defined context ensures the security and safety of tokens.

The emergence of Ethereum made it possible to create not only your own projects and decentralized applications (DAPPS), but also your own tokens.

Four key benefits of tokenization:

1. Increased liquidity.Access to a wider base of tradersincreases liquidity, benefiting investors and sellers as tokens benefit from a “liquidity premium”, thereby capturing more value from the underlying asset.

2. Fast and cheap transactions

Token transactions are carried out using smartcontracts (software algorithms integrated into the blockchain with trigger actions based on predetermined parameters), automating the exchange process. This automation reduces the administrative burden associated with buying and selling, resulting not only in faster trade execution, but also in lower transaction fees. 

3. Transparency

Security token can directly include rightsand the legal obligations of the holder of the asset, together with an unchanged title deed. These characteristics add transparency to transactions, allowing you to know who you are dealing with, what your and their rights are, and who previously owned the token.

4. Availability 

Tokenization can make investments in assetsmore affordable. Tokens are highly divisible. This means that investors can buy not a whole asset, but a small percentage of it. This will pave the way for a significant reduction in minimum investment requirements. Moreover, the higher liquidity of the tokens can also shorten the minimum investment periods as investors can exchange their tokens in the secondary markets.

Today the market offers two main categories of tokens:officialAndinvestment... They differ in their scope.

Investment tokenstransfer to the owner the right to an asset or part thereof to obtain an agreed benefit:

 ⁃ Receipt of profit is proportional to investments.

 ⁃ Participation in platform management.

 Such investments are regulated by federal law  

Service tokens – this is a future right to a product that is being developed but not yet released. 

When considering tokenization opportunities, the high-cost areas of real estate and visual arts are particularly promising.

Tokenization allows you to invest 50 euros ina work of art or a particular building of interest, and then it is easy to sell part of the property as you wish. This opens up a new era of much more personalization and investment customization.

Tokenized economy or “Tokenomics” creates a more supportive financial world that lowers barriers to creating, buying and selling valuable assets. 

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