Private credit has one of the best risk-reward ratios and is well-placed to continue to outperform relative to bonds for the foreseeable future
5 Advantages of Tokenising the Real World
In recent years, tokenisation has become a buzzword in the world of finance and investment.
Tokenisation is the process of converting a real-world asset into a digital token that can be traded on a blockchain network. Real-world assets can include anything from real estate to art to commodities and stocks. The tokenisation process transfers rights from a physical, financial, or intellectual asset into a digital token. Furthermore, tokenising assets creates more transparency due to the data trail it produces, which can be easily tracked and monitored.
Building digital assets via tokenisation requires a deep understanding of cryptography, specific financial laws, and technical skills to deploy secure, compliant, and working asset-backed tokens. There are so many benefits of tokenisation for real-world assets, so let’s go over the most significant advantages.
One of the most significant benefits of tokenisation is increased liquidity. Traditional assets like loans, real estate and art can be illiquid, which means they are challenging to sell quickly. However, by tokenising these assets, they become tradable 24/7 on a global market, providing investors with greater flexibility and liquidity.
This liquidity can also increase the value of the underlying asset, as it becomes easier to trade and, therefore, more attractive to investors.
Another benefit of tokenisation is fractional ownership. By dividing a real-world asset into smaller digital tokens, investors can own a fraction of the asset. This makes it easier for investors to invest in high-value assets which they may not have been able to afford otherwise. It also provides a new level of accessibility, as investors can own a portion of an asset with a much smaller investment, increasing overall market participation.
Tokenisation provides increased transparency compared to traditional assets. The use of blockchain technology means that transactions are recorded on a decentralised ledger that is transparent and immutable. This transparency provides investors with greater confidence in the integrity of the transaction, as all parties can see the history of ownership and the current ownership structure of the asset.
Lower Transaction Costs
Tokenisation also offers lower transaction costs compared to traditional assets. In the traditional market, there are many intermediaries involved in the buying and selling process, each of whom takes a commission. However, with tokenisation, transactions can be done on a blockchain network without the need for intermediaries, significantly reducing transaction fees.
Access to New Markets
Finally, tokenisation provides access to new markets. Digital tokens can be traded globally, providing investors with access to a broader range of markets than traditional assets. This global accessibility can help investors to diversify their portfolios and reduce risk.
Smart contracts play a critical role in tokenisation by defining the rules and conditions of the token sale and transfer. The smart contract is programmed to automatically execute the terms of the agreement, such as the transfer of ownership, payment of dividends, or distribution of profits.
Smart contracts enable tokenisation to be transparent, secure, and efficient. All transactions are recorded on a decentralized ledger, which ensures that the ownership and transfer of tokens are transparent and verifiable. Smart contracts also ensure that the rules and conditions of the token sale and transfer are automatically enforced, which reduces the need for intermediaries and eliminates the risk of fraud or errors. This can also reduce transaction costs, processing times, and errors.
Overall, smart contracts are a critical component of tokenisation, enabling the creation and management of digital assets that can be traded and owned by anyone, anywhere in the world.
In conclusion, the benefits of tokenisation of real-world assets are clear. Tokenisation has the potential to be a true disruptor with the potential to transform existing asset life cycles, accelerate product innovation and create hyper-personalised options for investors.
With the increasing adoption of blockchain technology and the growing interest in digital assets, we can expect to see more tokenised assets in the future, providing investors with new opportunities and benefits.
Until next month,
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