Tokenization using Blockchain technology, is gaining popularity as it provides multiple benefits in the area of asset management. Recent reports suggest that $4.314 billion worth of real-world assets (at the time of writing) have already been tokenized. According to Chainlink, popularity of asset-backed tokenization comes from the benefits of improving liquidity for investments like real estate and art pieces, simplifying their sales significantly.
Wondering what Tokenization means and what its applications are? Given the current asset management landscape, this blog explores the Tokenization concept in depth. Read on to learn more about:
What is Asset Tokenization in Blockchain?
Tokenization in Blockchain combines distributed ledger technology and asset digitisation to reshape conventional asset ownership and transfer norms. It leverages Blockchain's inherent properties to enhance transparency and security, while tokenization facilitates fractional ownership to improve liquidity.
Blockchain technology is based on a decentralised, distributed ledger system that records node transactions. It uses cryptographic mechanisms to ensure transparency, immutability, and security.
Asset-backed Tokenization enables the representation of real-world assets as digital tokens on a blockchain. These tokens symbolise ownership rights or shares in the underlying asset. Their characteristics include divisibility, fungibility, and transferability.
Asset Management: Challenges and the Way Forward
Traditionally, asset management has included the process of overseeing and optimising the performance of financial assets. It primarily involved manual, paper-based processes and outdated technologies, posing several limitations regarding operational efficiency, impact transparency, and accessibility to investment opportunities. Consequently, asset managers using legacy systems have battled with the following challenges:
- Inadequate data management infrastructure
- Fragmented systems and data silos
- Compliance complexities
- High administrative costs
Furthermore, the need for real-time visibility into asset performance and market trends affects your decision-making processes. It impedes the ability to capitalise on emerging opportunities and mitigate risks. Such circumstances necessitate a shift toward advanced, technologically driven solutions. Tokenization emerges as a strategic choice to enhance asset management. Let’s understand how that happens.
How Tokenization in Blockchain Addresses Existing Gaps and Transforms Asset Management
Tokenization in Blockchain addresses existing gaps by providing a secure and transparent way to represent and manage real-world assets digitally. Let’s look at the different ways it improves asset management.
Increases liquidity
Tokenization enables asset division into digital tokens to fractionalise ownership. A fractional ownership model enhances liquidity by allowing investors to trade fractions of assets. The result is the opening up of previously illiquid markets and expanding investment opportunities.
Enhances transparency and security
Tokenization leverages blockchain technology's immutable nature to ensure transparent and secure transactions. A decentralised ledger records each transaction to provide a tamper-proof asset ownership and transfer record. Transparency builds trust among stakeholders and reduces the risk of fraud and manipulation.
Lowers costs and leads to efficiency gains
Tokenization streamlines asset management processes by automating tasks through smart contracts. Smart contracts execute predefined rules and agreements, eliminating intermediaries and associated fees. Automation leads to significant cost reductions alongside enhanced operational efficiencies throughout the asset management lifecycle.
Democratises asset ownership
Through tokenization, asset ownership becomes more accessible to investors. Fractional ownership allows individuals to invest in high-value assets without purchasing them outright. This way, it democratises access to investment opportunities, giving investors of all sizes a level playing field.
Adheres to compliances and regulations
Smart contracts can embed compliance rules directly into tokenized assets. They ensure transactions adhere to regulatory requirements automatically. As a result, asset managers' administrative burden is reduced, and compliance with relevant laws becomes more manageable.
Which Industries Can Leverage the Benefits of Tokenization in Blockchain?
Applications of Tokenization are widely prevalent by now. Several industries across sectors are leveraging Tokenization in Blockchain to innovate their operations such as:
Real Estate
Tokenization is revamping the real estate industry by offering fractional ownership of properties. Investors can diversify their portfolios and access previously inaccessible markets. At the same time, liquidity improves, and barriers to entry are reduced.
Finance
Tokenization transforms the issuance and trading of financial instruments, including stocks, bonds, and derivatives. Such assets are digitised as tokens on blockchain networks to result in faster settlement times. As a result, transaction costs are reduced, and market accessibility is increased.
Healthcare
Tokenization in the healthcare sector helps create tamper-proof records of patient information. It helps improve medical billing and supply chain management. At the same time, the integrity of sensitive data can be intact.
Art
The art industry is leveraging Blockchain Tokenization to democratise access to art investments. Tokenization is helping enhance liquidity in the art market. Tokenized art assets allow fractional ownership. Investors can trade shares of valuable artworks, increasing market participation and liquidity.
Now, let's put what we’ve discussed so far into perspective and understand the concept better.
Examples of Tokenization Platforms
A Tokenization platform is a digital infrastructure that uses blockchain technology to tokenize real-world assets. The technology facilitates their representation as digital tokens, enabling efficient transfer, trading, and asset management.
Let us consider the example of WadzPay’s Tokenization Platform. It is a platform enabling asset tokenization and facilitating the seamless integration of digital assets into various business models.
Revolutionise Asset Management Using WadzPay’s Tokenization Platform
As mentioned earlier, asset tokenization opens unparalleled opportunities for enhancing liquidity and transparency in asset management. Couple this with asset fractionalisation and smart contracts, and you can democratise ownership like never before.
Want to explore its transformative potential to manage and trade assets better?
Get in touch with us at WadzPay to explore possibilities with Tokenization and identify new avenues of growth in asset management.