Asset Tokenization On Blockchain Simplified: Complete Overview
Blockchain has given new wings to the decentralization movement with its revolutionizing technology and distributed ledger functionalities. With the emergence of Bitcoin, tons of investment and asset management opportunities opened up. By 'assets' here, we mean the digital representation of anything that has value and can be shared, used, or traded electronically.?Before moving onto the actual topic of "Asset Tokenization", as our usual ritual, I need to mention that in our previous article, I gave a detailed insight into "Blockchain on Digital Identity".?You can give it a quick read here.
What is Asset Tokenization?
It is a process of issuing digital tokens to represent any tradable asset including both physical and non-physical assets such as finance, art, healthcare, or real estate.?The core idea of this concept guarantees the ownership of an asset that no authority can erase or steal. Let's understand Asset Tokenization in a better light with a real-life example.?
Suppose you own a property of valuation around 50 lakh INR which is your asset. Asset Tokenization can convert ownership of your 50 lakh property into 50 lakh tokens. When you need a home to live in and also you come up with a monetary requirement of 50,000/-, selling your entire property doesn't make sense.?Agree? Therefore, this concept of asset tokenization works on the characteristics of breaking down an asset into fragments of ownership and the buyer of the token becomes the sole owner of that fragment of the asset. It simply means if someone buys 25 lakh tokens of the given asset, in the example above, the person will become the owner of 50% of the asset.?Two types of tokenized assets exist as explained in the points further.
Types of Tokenized Assets
Steps of Asset Tokenization
An asset can be tokenized through the following steps explained in the pointers below.
Step 1: At first, choose the asset to be tokenized such as a property, an artwork, or any physical commodity.?
Step 2: Next, define the token type i.e. security token, NFT, or utility token.?
Step 3: Analyzing the regulations becomes crucial at this step. For example, HICC regulations for healthcare-related assets and SEC for financial securities.?
Step 4: A tokenomics model is formulated that defines the token supply and demand, token value, and all the rights associated with it.
Step 5: A blockchain platform is chosen for asset tokenization.?
Step 6: Development of smart contracts to program the regulations and the entire behavior of the tokenized assets.?
领英推荐
Step 7: Development of token-based asset management applications for issuers and holders.?
Step 8: Integration of tokenized assets with vital systems such as crypto wallet, payment gateway, accounting software, KYC/AML verification, etc.?
Step 9: Issuance of tokens in form of ITO, IDO, STO, etc to enable primary purchasing or distribution.?
Additional steps can be executed based on the type of project and asset tokenization.?
Tokenization VS Securitization
The core difference between tokenization and securitization is that tokenization turns real-world or virtual assets into high-liquidity tokens that can be shared, distributed, or owned. While on the other hand, securitization turns low-liquidity assets into higher security instruments that can be used for trading in the markets.??
Advantages of Asset Tokenization
The advantages of asset tokenization are as follows:
Popular Use Cases of Asset Tokenization
Some of the popular use cases of asset tokenization are evident in industries such as:
Final Thoughts
I hope this article helped give you an insight into what is "asset tokenization" and the various industries that make use of this concept in a real-world scenario. To learn more about the token economy and its working, get in touch with our industry experts & be a part of our community of blockchain enthusiasts.