Asset tokenization unleashes investment revolution
Tokenization of real assets will shake up the investment world. All investments will become liquid. Today we talk about the arrival of a new investment market with a size of 256 trillion dollars.
Not every investor realizes it, but we are on the eve of a revolution in the investment world, one that may go even further than the opening of the Nasdaq in 1971.
Back then, the Nasdaq made stock market trading cheaper, more efficient and more liquid. Tokenization is the name of the new game. For the first time, anything can be traded on a daily basis, as long as the underlying asset is tokenized.
Tokenization is one of the big trends in the investment world. A lot has to happen for it to become a reality, but financial institutions are already working on it.
Tokenization is the third and probably largest application of blockchain technology. The first phase was ushered in by cryptocurrencies, whose future is now increasingly uncertain. About 99.9% of payment coins will disappear, because there is no underlying value underneath. However, that will be different if central banks will cover digital coins.
Phase two consists of the issuance of utility coins, special coins that can be used to pay for the use of blockchain infrastructure, just as no letter is sent without a stamp.
And then we have phase three with the issuance of asset coins. This makes it possible, for the first time in the history of mankind, for illiquid assets, such as real estate and art, to be traded in small chunks at any time of the day. And who owes what is all neatly tracked via the blockchain.
Example: The Scream from Edvard Much is being tokenized in Switzerland. Instead of selling the painting for 120 million euros, corresponding to its appraised value, it is chopped up into a million pieces by issuing special tokens.
To enable the trade in these tokens, lawyers, an insurance company, art experts and maintenance people are brought in. This is just one example, but paintings are already being tokenized in Switzerland.
A painting does not generate any income. Investors just have to hope that it will increase in value. But real estate, for example, does provide an income stream. Holders of tokens in that case distribute not only the value of the building, but also the rental income. This rental income is transferred directly via the blockchain.
The main benefit of tokenization is, that in addition to large institutional investors, smaller investors will also have access to what are currently illiquid assets. These illiquid assets will soon no longer be illiquid, but easily traded. The price determines the market. True diversification has never been easier.
Tokenization improves risk/return ratio
How big can the market for asset coins become?
The total market value of real assets that can be tokenized at this moment is approximately 256 trillion dollars. That consists mainly of real estate, but art will also make up a portion.
Will asset coins get prices like stocks and bonds?
Yes, definitely. The very purpose of real asset tokenization is to stimulate active trading and to enable illiquid assets to be actively traded. These prices will be maintained on exchange platforms. These can be traditional exchanges, but there are a lot of challengers at the moment who want to take on the role of token exchange. Brickken is a good example of that.
It is important, though, that this happens in a regulated environment. But commerce is going to take on a different dimension as it becomes global and 24/7. This alone will be a huge change from current stock market trading.
Will bonds and stocks ever become asset coins?
They could in the long term. Currently, trading in bonds and equities is efficient via the current infrastructure, but the administrative part after the trade, the post-trade settlement, is not. This increases costs and creates counterparty risk.
Access to unlisted companies in the form of stocks or bonds is clearly a new market though, one that could grow thanks to tokenization. At the moment the focus is still on real estate and art, although Brickken is interested in tokenizing companies as well.
What makes blockchain more efficient than existing trading technology?
For trading in itself it makes little difference at the moment, but it does for the administrative processing of it. Also, the 24/7 nature of token trading will have an impact on stocks and bonds and on mutual funds that can issue continuous prices instead of once a day. Technically it can be done at the moment, but the cost of doing so is too high.
What is the biggest roadblock to getting asset tokens trading widespread?
Regulation, investor protection, KYA (know your asset) and trust in parties who will set this up. That is a double advantage for existing parties who have built up a position of trust and know how to deal with regulations. But can they deploy the necessary technology?
It is therefore quite conceivable that existing parties will buy up and integrate relevant start-ups. That offers opportunities, as new technology and a strong brand name come together. But it is not an easy task, because company cultures are often very different.
As you can see tokenization will completely change how the world of investing operates, and in this change allow anybody to be able to invest in tokenized asset by acquiring their corresponding tokens. Join Brickken now, and don’t miss out on this investment revolution!