Tokenization of real-world assets
What is going on?
To overcome the crisis caused by the COVID-19 pandemic and accelerate the transition towards greener production, the real sectors of the world economy need additional funding. However, regulatory requirements for banks' capital adequacy to support risks impose restrictions on what traditional financial institutions can do. As a result, the real sector is forced to look for opportunities to attract funding from institutional and retail investors.
Digital industries can count on increased investments due to democratizing access to private assets, whereas the real sector will have to solve a more fundamental task — securitization of existing assets. In other words, they need to restructure illiquid assets into tradable securities through tokenization (digitization).
Digital industries can count on increased investments due to democratizing access to private assets, whereas the real sector will have to solve a more fundamental task — securitization of existing assets. In other words, they need to restructure illiquid assets into tradable securities through tokenization (digitization).
The digitization of ownership and copyright creates new asset classes that can be sold, bought, and divided. At the same time, DLT (distributed ledger technology) gives real-time access to verified, up-to-date information to all parties to the transaction. Thus, the securitization of assets increases the transparency and security of the processes associated with raising funds. It also reduces manual transactions.
Digitization can apply to transactions with any asset in the real world — For example, mortgages, corporate liabilities, trade finance, and green assets.
Digitization can apply to transactions with any asset in the real world — For example, mortgages, corporate liabilities, trade finance, and green assets.
What will happen next?
Scenario 1
Products based on tokenized assets will continue to exist exclusively in alternative finance and be quite expensive. Market participants with a higher risk appetite will benefit from the development of the trend.
Scenario 2
Asset tokenization will become deeply integrated with other business processes, which will allow companies to develop a reliable infrastructure for non-standard use cases. This infrastructure will be used to create new financial products.
Limitations
Local regulation
Specific jurisdictions largely affect how fast asset tokenization can develop. In some countries like Switzerland, the legislation is more open to digitizing assets, while other countries are strongly against it.
Lack of investor interest
Securitization of real-world assets reduces investment risks but does not allow for scaling profits as quickly as, for example, investing in SaaS.
Mistrust
Investors are yet to grasp the specifics of new asset classes and find ways to maximize profits.
High maintenance cost
At this stage, distributed infrastructure is quite expensive to use.
Use Cases
Token issuance platforms
This trend brought about the most common class of fintech companies. Such DLT solutions allow you to digitize any rights or obligations of the company.
End-to-end solutions for operations with tokenized assets
This refers to a complex format in which platforms not only issue tokenized assets but also provide services for interacting with them to all parties involved.
New infrastructure for institutional investors
Distributed platforms simplify the infrastructure for securities transactions by replacing fragmented databases and using self-executing smart contracts.
Industry solutions
These are platforms for tokenizing and servicing assets for certain industries, such as supply chain finance.
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