Tokenization Is Gaining Momentum As It Breaks Down Barriers To Entry

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As a seasoned crypto investor with a knack for spotting promising trends, I find myself captivated by the transformative potential of tokenization. With my background in both traditional finance and technology, I can see that this innovation is poised to revolutionize the way we interact with financial markets.

A number of established financial institutions have taken notice of tokenization, a technology that has caught their attention due to its ability to revolutionize the way financial markets function.

Over the past few years, numerous headlines have announced that major banks like Goldman Sachs and JPMorgan Chase have been actively investigating the advantages of tokenization – a procedure that involves moving physical assets onto blockchain technology to facilitate decentralized trading. Companies such as Blocksquare are revolutionizing the real estate market through tokenization, while Maecenas and Masterworks are accomplishing similar feats in the luxury art investment sector.

It’s widely known that established financial giants are showing significant interest in this technology. For example, in 2023, Goldman Sachs, Société Générale, and Santander collaborated to help the European Investment Bank issue a tokenized bond worth €100 million over two years.

Simultaneously, JPMorgan has been investigating the benefits of tokenization within foreign exchange markets, successfully completing a trial transaction involving Singapore dollar and Japanese yen deposits. Meanwhile, ABN Amro, based in the Netherlands, gained attention in January 2023 by issuing €450,000 worth of bonds on the Stellar blockchain using XLM as its underlying technology.

According to predictions from the consulting group Boston Consulting, the total worth of tokenized assets worldwide is expected to amount to an impressive $16.1 trillion by the year 2030, thereby revolutionizing access to various previously inaccessible or illiquid markets.

Accessible investing

To put it simply, tokenization transforms tangible assets like real estate, art, wine, bonds, stocks, and commodities into digital versions that exist on a blockchain. These digital tokens carry information and functions, including automatic compliance actions such as reclaims and freezes. By enclosing all essential data within the digital trail of these tokens, it allows for non-stop trading on decentralized markets, with transactions being processed instantly.

This holds great potential across numerous industries. Although sectors like foreign exchange and stocks currently enjoy the advantages of digital streamlining, this is not yet the case for others, particularly real estate, which continue to depend heavily on traditional, manual methods.

One major advantage of tokenization is its ability to make investing more accessible. Traditionally, real estate has been considered a rather exclusive market due to the high capital requirements for investors. Even affordable properties in many U.S. cities can cost over $100,000, which is beyond the reach of most individuals.

Tokenization revolutionizes the investment landscape. Blocksquare’s tokenized real estate marketplace presents numerous affordable investment opportunities for those with more modest resources, enabling them to invest in various luxury rental properties at a fraction of the cost. This is achieved through tokenization, which facilitates the idea of “fractional ownership” or “fractional shares”. For instance, a million-dollar beachfront hotel could be divided into 10,000 tokens, each representing 1/10,000th ownership of that property. If the hotel is valued at $1 million, these tokens can be purchased and traded for only $100. Owners of these tokens would then be entitled to a share of the revenue generated by the property.

It’s convenient that people can invest in tokenized real estate through Blocksquare. To begin, they simply need to acquire the platform’s native cryptocurrency, BST, which is available for purchase on platforms like Bitpanda and various other crypto exchanges. This serves as their entry point into real estate investment.

Beyond real estate, tokenization also provides access to the lucrative blue-chip art market, which has consistently yielded high returns for investors. High-value artworks are often sold in the millions, but platforms like Maecenas or Masterworks enable you to invest in multiple prestigious pieces for a few hundred dollars apiece. These tokenized arts are exhibited in public galleries for everyone’s enjoyment, and individual tokens can be traded on decentralized marketplaces. If the platform chooses to sell the art for a profit, token holders will receive their portion of the sale earnings automatically.

2018 saw Maecenas grabbing attention as they purchased a 31.5% share in the renowned Andy Warhol artwork “14 Small Electric Chairs”, valued at $1.7 million.

Even gold can be democratized with tokenization. Traditionally, the most affordable way to invest in gold was to simply purchase a relatively inexpensive piece of gold jewelry, but access became even easier with HSBC’s Evolve platform, which introduces the concept of tokenized gold. The bank tokenized a significant portion of the gold held in its London vaults, with each token representing 0.001 troy ounce, which can be traded using its distributed ledger technology. 

Alternative instances involve tokens like Pax Gold and DGLD, each representing ownership of actual gold kept securely in vaults. This setup enables investors to purchase and exchange small portions of this valuable resource.

An enticing prospect

By democratizing markets like real estate, fine art and commodities, tokenization can have a significant impact on liquidity and potentially bring enormous value into them. The ability to buy and sell low-cost tokens promotes capital inflow, as it opens the door to more investors, which can potentially lead to a dramatic increase in demand for such assets. We’ve already seen evidence of this, with the market for tokenized gold topping $1 billion in April 2023. 

In markets with higher liquidity, they become more enticing to individuals for reasons beyond just lower costs. Rapidly selling an illiquid asset like real estate, which was once a tedious process involving lots of paperwork and numerous middlemen, can now be done swiftly by investors who need to move in and out of positions quickly. For instance, selling a $1 million property traditionally required much time and many steps, but selling the equivalent value in tokens takes mere seconds without any intermediaries.

Tokenization streamlines transactions, making them both less expensive and faster. This advantage empowers investors to effortlessly diversify their investment portfolios. In fact, it’s swift and simple to buy a variety of tokenized assets such as stocks, shares, foreign exchange, real estate, commodities, art, and even fine wine. By spreading risk in this manner, you could potentially optimize your returns.

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2024-10-27 12:33