Key Takeaways:
Blockchain networks could gain trillions of real value through asset tokenization.
Compared to traditional assets, tokenized assets provide permissionless liquidity, open access, on-chain transparency, and less transactional friction.
The process of representing ownership or rights to an asset as a tradable, on-chain token through the use of smart contracts and blockchain technology is known as "asset tokenization."
Real-world asset tokenization might theoretically refer to the tokenization of anything having monetary worth, like art, real estate, or whisky even if it most frequently refers to the tokenization of financial or fungible assets, such as shares in a firm or a quantity of gold. With the potential to embrace almost all human economic activity, asset tokenization is one of the most intriguing use cases for blockchain technology. According to research from BCG, experts estimate that the real-world asset tokenization market will likely hit a huge $16 trillion by 2030.
The Web3 world has a hitch: connecting to real-life info (off-chain) can be risky. Asset tokenization, which depends on this external data, feels the pinch too. Here's where innovations like DualProvenance protocol by DualMint come in – secure bridges between the blockchain and real-world assets. DualProvenance is crucial for asset tokenization to shine truly. Why? Because markets need trustworthy information on real assets for things like creating tokens (minting), trading them and managing them effectively.
What Is Asset Tokenization?
Asset tokenization is the process of turning a real object like an artwork, real estate, or even machinery into a digital token offering to be traded. These tokens function similarly to certificates and are safely kept on a blockchain, which is a public ledger accessible to all. This enables you to use your digital wallet to directly manage your ownership.
Apart from the lofty ideas, asset tokenization is taking off! Major players like Microsoft, BlackRock, and Boston Consulting Group are getting on board. They see this technology transforming industries beyond just banking. As a result, asset tokenization is emerging as one of the most practical applications of blockchain technology in the real world.
Examples of Asset Tokenization
Tokenization of real-world assets: On a blockchain, real-world assets such as fine art, fiat money, and commodities can be tokenized and stored. They are bearer assets that grant the possessor a claim over an actual asset. Physical asset tokenization allows assets to be stored, exchanged, and used as collateral over blockchain networks, which is a major distinction from old bearer assets.
Tokenization of in-game assets: As a subset of tokenization of digital assets, tokenized assets can be used to represent in-game items like skins, weaponry, or in-game money that are utilized in GameFi projects or metaverses.
How Does Asset Tokenization Work?
Let's say you have a rare and expensive painting that you would like other people to enjoy. You decide not to physically divide the picture but to tokenize instead.
Before you share the picture, you would have to make a plan. This involves defining how many digital tokens represent the entire painting, ensuring each token correlates to a portion of the painting’s overall value.
Next, you would use smart contracts to make sure that each person who owns a token has the rights and benefits that come with their part of the painting. The last step is to set up a way to trade these tokens. This will make buying and selling shares of the picture easy and safe.
Process of Asset Tokenization
Let’s say you wish to share your valuable and unique painting with people. You choose to tokenize it rather than physically divide it. Here is what the tokenization process could look like:
Asset Selection: This initial step involves identifying which assets are suitable for tokenization. The selection is based on factors such as market demand, the inherent value of the asset, and its suitability for being divided into smaller units or shares.
Token Type Definition: Once the asset is chosen, the next step is to define the type of token that will represent the asset on the blockchain. Tokens can be fungible, like cryptocurrencies, where each token is identical to another, or non-fungible (NFTs), where each token is unique and represents ownership of a specific part of the asset.
Compliance Analysis: It’s critical to ensure that the tokenization process adheres to legal and regulatory requirements, both locally and internationally.
Tokenomics Creation: Tokenomics defines how tokens are issued, distributed, and priced, and what rights or benefits they confer to the holder.
Blockchain Platform Selection: Choosing the appropriate blockchain platform is essential. The platform must support the token standard being used (such as ERC-20 for fungible tokens or ERC-721 for NFTs) and provide the necessary security, scalability, and interoperability required by the project.
Smart Contract Development: Smart contracts are self-executing contracts with the terms of the agreement directly written into code. In the context of tokenization, they handle the issuance of tokens, manage transactions such as transfers and trades, and ensure compliance with the predefined rules of operation for the token.
Token Issuance: This is the actual creation and distribution of the tokens on the blockchain. The issuance can be done through various mechanisms such as private sales, initial token offerings, or direct issuance to specified parties.
Listing on Trading Platforms: Finally, for tokens intended to be traded publicly, list the tokens on cryptocurrency exchanges or NFT marketplaces.
Benefits of Asset Tokenization
Asset tokenization has many more advantages than just providing a decentralized and trust-minimized substitute for a physical good, investment vehicle, or service. To be more precise, the tokenization of physical assets via blockchain technology offers a direct route to increasing the value, use, and accessibility of many assets.
Liquidity :
In traditional markets, financial transactions are recorded in separate ledgers, which can cause inefficiencies like high costs and slow transaction times. Asset tokenization can significantly improve these inefficiencies. By converting assets into digital tokens, tokenization allows these assets to be divided into smaller, more manageable parts, or shares. These tokens can then be traded on various exchanges, much like stocks. This process increases the asset's liquidity, making it easier to buy and sell quickly and at lower costs.
Accessibility:
High-value assets, often unreachable due to steep costs or complex regulations, become more accessible through tokenization. This method lowers entry barriers, enabling more people to contribute smaller amounts towards significant projects or assets, thereby allowing them to share in potential returns without large upfront outlays.
Transparency:
High-value assets often lack accessible and reliable data on ownership, sales, and other essential details critical for thorough evaluation. This issue becomes particularly pronounced when assessing foreign assets or in scenarios where physical inspection before purchase isn't possible. Tokenization leverages the inherently public nature of blockchains to offer transparent tracking and auditing of all pertinent information, which is crucial for trustworthy transactions. DualProvenance enhances this transparency further by ensuring a dual record-keeping system, where both digital and traditional trails are maintained and synchronized, increasing the integrity and reliability of asset-related data even more.
Conclusion
The process of tokenization is changing how we own and handle assets. You may take advantage of your assets' full potential and take part in a more accessible and effective financial environment with DualMint.