By Vivek Gupta
The rapid advancement of Web3.0 technologies, such as blockchain and virtual digital assets, has paved the way for a groundbreaking financial innovation known as tokenisation. By enabling the creation of virtual representations of real-world assets on blockchains, tokenisation bridges the gap between traditional finance and the digital realm, unlocking a multitude of benefits for investors and asset owners. This article explores the transformative power of tokenisation, its advantages, and the assets that can be tokenised, ushering in a new era of liquidity, efficiency, security, and global market access.
The Power of Tokenisation
Tokenisation involves the issuance of tokens on a blockchain, that represent fractional ownership in tangible assets. This revolutionary concept democratizes investment opportunities and enables seamless buying, selling, and trading of asset-backed tokens within digital marketplaces. By leveraging the advantages of blockchain technology, tokenisation serves as a catalyst for the digital future of asset ownership and investment. A research by the Boston Consulting Group (BCG) suggests that the tokenisation of global illiquid assets could become a $16 trillion industry by 2030 while a CITI Group’s latest global perspectives and solutions (GPS) report foresees real world asset (RWA) tokenisation as a “killer use case.”
- Enhanced Liquidity and Reduced Costs
One of the primary advantages of tokenisation is increased liquidity. Through fractional ownership, investors can buy and sell smaller portions of assets, expanding the scope of investment opportunities and making markets more accessible. The elimination of intermediaries and streamlined transfer processes significantly reduce transaction costs, making investing in tokenised assets more cost-effective and efficient for both investors and asset owners. Moreover, faster transaction settlement speeds up the process of buying and selling assets, further boosting market activity.
- Security and Transparency
Tokenisation harnesses the inherent security features of blockchain technology to protect assets from fraud and cyber attacks. The transparent nature of blockchain ensures that counterfeit assets are kept at bay, instilling trust and confidence in the market. Investors can verify the history and authenticity of assets, reducing the risk of fraudulent activities. Additionally, blockchain’s immutable and publicly accessible records enhance transparency in asset ownership and transactions, further strengthening market integrity.
- Global Market Access and Portfolio Diversification
Tokenisation breaks down geographical barriers, granting investors worldwide access to tokenised assets on blockchain platforms. This opens up new avenues for cross-border investment and diversification, fostering global economic growth. Furthermore, tokenisation enables investors to access a wider range of asset classes and sectors, facilitating portfolio diversification and effective risk management.
Assets That Can Be Tokenised
The potential for tokenisation spans various asset classes. Art and collectibles have emerged as a popular asset-class for this purpose, with tokenisation allowing fractional ownership and wider access to valuable masterpieces and rare items. There have also been examples of tokenisation of carbon credits streamlines emission trading, promoting transparency in the fight against climate change. Commodities, such as agricultural products, gold, or oil, can be tokenised to enhance liquidity and price discovery.
Financial instruments, such as bonds and loans, can be digitized, enabling real-time tracking of ownership and performance. Nigeria’s Securities and Exchange Commission is considering allowing tokenised coin offerings backed by equity, debt or property.
Tokenisation can also revolutionise real estate investments, reduce transaction costs, and increase market liquidity. Additionally, stressed and non-performing assets can be revitalized through tokenisation, creating new opportunities for investors and financial institutions.
Conclusion
Tokenisation stands as a logical progression in the digitization of assets, made possible by the power of blockchain technology and virtual digital assets. With its ability to enhance liquidity, reduce costs, improve security, enable global market access, and facilitate portfolio diversification, tokenisation is poised to reshape the future of asset ownership and investment. As this innovative approach gains momentum, it paves the way for a digital era where traditional barriers are dismantled, unlocking unprecedented opportunities for individuals and institutions alike. The advent of tokenisation marks a significant milestone in the ongoing development of the financial industry, propelling us towards a digital future of financial inclusion, efficiency, and growth.
The author is chief technology officer, CoinDCX
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