Asset tokenization: 3 things you need to know
Technology has dramatically changed the way value exchanges are made. These are the key take-aways about what asset tokenization is, its benefits and why it is a business opportunity.
New technologies have succeeded in changing the way we invest. Digital currencies or digital assets are the new reality, and it is important to understand what they are and how they work in order to spot these modern business opportunities. Here’s what you need to know about asset tokenización.
The days when a person had to buy an asset to invest are long gone. Over the years, technology has allowed us to invest in all kinds of financial assets without the need to purchase them in physical form. This is exactly where the concept of tokenization comes from. Even if you’re not an investor, you’ve probably heard of cryptocurrencies, tokens, NFTs and different types of digital assets.
These technological advances have brought different investment possibilities available to everybody, something which was unimaginable decades ago. That’s why today we’re talking about 3 things you should know about asset tokenization.
1. What is asset tokenization about?
Tokenization is the process of taking the value of a real financial asset, whether tangible or intangible, and dividing it into multiple fractions in the form of digital tokens. In financial terms, a token is a digital asset that represents a proportional share of a real asset. In this sense, the owner of a digital token has almost the same benefits as if he or she owned the real asset. This has been achieved with currencies, precious metals, commodities, real estate and even works of art.
Many financial assets or real objects of value can be tokenized. This allows their ownership or intellectual rights to become a tradable investment asset in the markets. When tokenized, any digital asset becomes fully cryptographically enabled and traded through blockchain technologies. An example of this is NFTs. For some years now, it has been possible to exchange and trade the copyrights of images, gifts and even memes. These media files can be traded on the markets as one or several tokens.
While these files may seem worthless, many investors have spotted a business opportunity in this speculative market. As of today, the most expensive NFT was traded for an astonishing $69.3 million. It is an artwork called ‘Everydays: The First 5000 Days’. This is an image made by a graphic designer, consisting of a collage of 5,000 of his own works. Another emblematic case is the EtherRock project, which became popular in 2021. This consisted of the sale of 100 images in PNG format, which attracted attention for being simple drawings of rocks. In this case, each NFT was traded for $260,000.
Tokenization has even reached video games, where skins and avatars are traded as financial assets. The most famous example is Axie Infinity, which converted its iconic characters into NFTs.
These are impressive examples of how far tokenization has come. However, there are simpler cases such as the tokenization of real estate. That is, making fractional investments in real estate through this type of technology.
2. Tokenization benefits
Benefits of asset tokenization are more than obvious. Tokens have opened the door for retail investors to an immense number of financial markets. As was explained, assets from single markets can be split into multiple tokens. Then, it is possible to invest smaller sums in that market without acquiring the asset itself.
Being able to trade entirely digitally also facilitates the investment methodology, especially in markets where asset purchase involves multiple transactions, such as real estate investment.
The fact that tokens encourage investment in different markets significantly increases their liquidity.
Tokenization also means that markets are completely unregulated. Digital assets are mostly decentralized assets. This means that they do not obey the laws of any specific jurisdiction, central banks or other entities.
The use of blockchain technology allows investors to follow market prices in real time. Because of this, investing in tokens can be much more transparent than investing in physical assets.
3. Business opportunities
Nowadays it is possible to tokenize all kinds of objects, which can represent a great business opportunity. Assets tokenization has led many people to identify significant market opportunities. It is clear from some of the examples mentioned that very high value assets can be traded thanks to the emergence of tokens. The emergence of new business models opens the door for new investors to take advantage of these markets to generate large profits. Years ago, making money playing video games seemed impossible. However, thanks to NFTs, it is now entirely possible.
Trading these assets can be extremely fast. Depending on the liquidity of the market in which they are traded, buying and selling tokens of all kinds is just a click away. This makes investing in this type of financial asset even more attractive. In addition to being able to buy tokens on the various markets, people are also faced with the possibility of tokenizing their own valuable assets.
In case you are an investor and are not too aware of these new trends, you need to get up to date on how these types of financial assets are currently traded. Do some research on asset tokenization and you can find options to generate profits. Tokens are the present and future of the investment world.
If you need more information about tokenizing an asset or a project you can contact us HERE.
