How Tokenization Could Bring Liquidity to Existing and Emergent Asset Classes

Tokenization uses digital representations — also known as “tokens” — of hard assets, such as money, real estate, art, or even contractual obligations. It embeds them into data that moves between parties through a blockchain.

According to a recent report from McKinsey & Company, the market for these kinds of tokenized digital deals is projected to reach $5 trillion by 2030.

How Tokenization Works

By converting the rights to an asset into digital tokens, international businesses can ensure transparency, security, and immutability backed up by a secure blockchain while significantly enhancing data protection and data security.

The tokens represent ownership or fractional ownership of the underlying RWA, which can range from investments to intellectual property.

Imagine a real estate investor acquiring a stake in a property through tokenization. That equity would be transferred in exchange for cash over a blockchain. Instead of this transaction being processed by a traditional wire or ACH transfer, the blockchain will include an impenetrable token with legally binding items attached, offering a robust layer of data security and data protection.

The process produces numerous benefits, such as increased liquidity, fractional ownership, and streamlined trading, all while ensuring the highest standards of data protection and security.

Enhancements in tokenization are also expected to increase access for investors from all backgrounds, opening up asset classes that have historically been restricted to institutions, funds, and high-net-worth individuals.

Real World Asset Tokenization’s Use Cases

Half of global finance leaders believe tokenization will significantly affect all asset classes, from real estate to derivatives and carbon credit markets. Unlike encrypted data, which relies on reversible encryption and a secret decryption key, tokenization offers a unique security benefit by replacing sensitive information with a non-sensitive equivalent, known as a token, that has no extrinsic or exploitable meaning or value.

Stocks and Bonds

Tokenization streamlines the trading of stocks and bonds by exchanging ownership rights through digital tokens — without the need for a broker-dealer or formal clearinghouse. This enables trading around the clock at a reduced cost to buyers and sellers.

Collectibles

For everything from historic paintings to rare baseball cards, tokenization facilitates the fractional ownership of collectibles, allowing enthusiasts to invest in high-value pieces. This broadens the art and collectibles market and prevents fraud, while transparently delivering appraisal and storage information.

Commodities

With much interest in the cross-border trading of commodities such as oil and rare minerals, tokenizing such RWA provides investors with exposure to these assets without the need for physical ownership or any of the overhead that comes with it. This encourages diversification and brings more liquidity into the market.

Intellectual Property

Tokenization gives inventors, artists, programmers, and musicians new ways to monetize their creations. Patents, copyrights, and royalties can be embedded in the blockchain to essentially make a new market for investors who want to buy or sell pieces of the IP or passively collect revenue from it.

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