The Future is Tokenized

A tokenized future is upon us, allowing investors at any scale to participate in fractionalized financial opportunities. Tokenized assets will help provide greater liquidity, better price discovery, faster and cheaper transactions, more transparency, and global accessibility. It could disrupt several asset classes that make up the multi-trillion-dollar market for real-world assets, bringing them into the digital age and transferring that value into highly liquid marketplaces.

You’ve heard about blockchain, about tokens, tokenization of illiquid assets. What does all of this mean for real-world businesses, consumers and investors??

Record keeping has been central to human civilization for millennia. The very emergence of the first writing system seems to have been, at least in part, tied to streamlining the recording and tracking of transactions.? Ledgers and contracts underpin the legal, political, and economic systems that facilitate interactions between households, firms, and governments. However, the technology of record keeping has not kept pace with broader technological change. In its current state, record keeping can cause delays, waste, overcharging, corruption, fraud, and security risks that amount to billions in lost revenue. Blockchain’s central promise is to resolve many of these issues.

Blockchain’s novel innovations and its key features of decentralization, immutability, security, transparency, auditability, and efficiency, offer a wide array of value propositions to businesses in a range of industries. The initial main use cases, at least in the enterprise setting, focus on unlocking value through waste reduction. However, blockchain technology has the potential to go far beyond these aims and reinvent whole value chains, especially when combined with other advanced technologies such as artificial intelligence (AI) and the internet of things (IoT).

One of the most common challenges faced by blockchain is having to overcome the common misconception held by many of their clients and the public at large: that blockchain is synonymous with Bitcoin and other cryptocurrencies. Blockchain is the technology where crypto lives, but it has a wider use and it has been adopted in many industries.?

The most immediate promise of blockchain-based solutions is the reduction of overhead costs through an increase in efficiency, transparency, and auditability. Digitizing transaction records on shared, distributed ledgers and tokenizing asset ownership can allow for faster transactions and reduced interest costs while simultaneously reducing the potential for fraud and money laundering.?

What is tokenization??

Simply put, tokenization means digitalization of an asset through blockchain. Any asset with real-world value such as real estate, land, arts and trademarks can be converted into a digital representation by issuing a token. Therefore legally speaking, these assets are securities.?

Tokenization levels the playing field to some degree, allowing even those among us with less capital to leverage the concept of fractional ownership to own a portion of an expensive asset - whether that be a condominium, vehicle, business, or piece of art. The impact of tokenization is broad and applies to just about anything of value, but today we’re going to focus solely on one of those investments: real estate.

Say you’re a property owner. Your property is your asset. Tokenizing that would mean issuing a number of tokens to represent the value of that asset. You can slice your asset into a million pieces and trade them on the market for greater liquidity and asset appreciation.?

Real estate represents the biggest single asset class that may be tokenized. Global real estate is around $228 trillion and only 7% of this is available to retail investors. Only 3% of the global population has invested in real estate, but more than 80% views real estate as a good investment. Efficient trading with real estate assets does not exist today and increased liquidity could potentially increase the existing market with a 20-25% liquidity premium.

The real estate industry is plagued by slow, expensive, cumbersome, and paper-based processes relating to the financing and management of projects. Financing is often done by a bank and a few trusted investors able to meet the minimum ticket size. Investors are locked in for several years and there is no easy or inexpensive way to sell shares beforehand.

Tokenization of real estate assets solves all of the above problems. Most processes related to financing and ongoing management can be digitized and even automated. Due to the 100x more efficient processes, it becomes possible to manage thousands of investors in a single project and hence to reduce the minimum ticket size down to $1,000 or even $100. This gives the real estate developer access to new types of investors and new sources of capital.? With the growth of the total amount of capital, the financing of real estate projects should become easier and less expensive.

Having real estate assets in a tokenized form allows for peer-to-peer trading with instant settlements. Real estate investors will be able to trade their digital shares or loan notes directly with each other in a safe and secure manner. Since the only way a security can exist in digital form outside a bank is as a token on the blockchain, this is the first time direct trading between individuals becomes possible. It only works with blockchain technology.

Last but not least, retail investors can obtain access to real estate investments. Real estate investors can now diversify their portfolios in a manner that is similar to the method wealthy investors have used for hundreds of years. This is also known as the democratization of real estate investments.

Tokenization of real estate enables developers to reduce the cost of financing and ongoing management, to target new types of investors, to more easily finance new projects, and to increase the liquidity of assets.

This is slowly becoming reality. Some of the last barriers to adoption are being removed. Knowledge and comfort with crypto is becoming more widespread. Software platforms are becoming easier to use to the point where little knowledge of crypto is actually required. Platforms that are tailor-made for real estate tokenization such as MountX.io. Pioneers among real estate are taking steps to become entrepreneurs in their local region or market segment. All of the different puzzle pieces in the new tokenization ecosystem are slowly falling into place.

What does this mean for regular people??

Imagine you have a $40 allocation into a property, for example, might not seem like much to most of us, but for a lot of investors, it’s a reasonable and achievable investment.

It’s not life-changing wealth, by any means, but investing has numerous benefits that aren’t immediately recognizable. What separates the wealthy from the rest of us is in the opportunities made available to them that aren’t readily available to the majority of the population. The vast majority of their money is tied up in investments designed to increase their wealth that produce higher yields than parking your cash in an interest-bearing bank account. For them, their money is always working, even when they aren’t.

But it’s not just income. Owning assets brings additional benefits, such as those that reduce your tax liability, or increase your ability to get a loan by acting as collateral. Most of all, it acts as a store of wealth that can be passed from one generation to the next.

Tokenization also opens up the global market, allowing for the democratization and globalization of local investments. With upcoming platforms, citizens in Mexico and Colombia can invest in property in Canada or in the US.

Best of all, it turns a traditionally illiquid asset, like real estate — one that requires months to cash out of — into one that can be bought, sold, and traded within minutes.

Using a distributed ledger paired with a regulated secondary exchange, deals can be recorded and immutably stored when ownership changes hands, in a way that’s transparent and viewable by anyone with an LTE or WiFi connection.

If this sounds futuristic, it’s worth noting that we’ve already seen examples of this in action.?