Never Underestimate the Potential of Asset Tokenization

May 15, 2020

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A quick glance at the market shows us that Innovators have realized the extent of possibilities that have been offered by tokenization, where virtually any asset can be tokenized.

Tokenization is the process of issuing a token that digitally representing an asset, or ownership of an asset. [1] Such assets can be gold/precious metals, and real estate or intangible assets such as shares and securities are all examples of assets classes that can be Tokenized. The benefits of tokenization and ethicality were discussed in previous articles.

ICOs were the first form of disruption caused by blockchain technology, allowing startups to raise funds and investors to trade their investment often from day one.

Tokenization is being hailed as a game changer because it has more to offer to investors than ICOs. Investor interest in ICOs has declined in last two years because investors have realized that ICOs often are not backed by anything of substance, whereas Tokenized Assets and STOs provide the best of both worlds since tokens combine the highly efficient trading and settlement process of blockchain platform with real world assets. In addition to this tokens allow investors to diversify their portfolio with a wide range of unique asset classes that they could not invest in before.

Tokenization Market Growth and Value

The last few years have seen an increase in investor interest in tokenization. According to the tokenization market report the growth in market value of tokenized assets has been almost 22.54% in the last four years and the market value is expected to reach an estimated $4.2 billion by 2027. [2] Another report published by the Security Token Group stated that the total market capitalization of security tokens as of January 2020 stands at $52.7 million. [3] These figures indicate that investors are showing interest and confidence in tokenized assets markets.

A quick glance at the market shows that almost any asset can be tokenized, as long as investors are willing to invest in it. Take gold for example, Digix was the world’s first asset tokenization company that issued tokens backed by gold. [4]

2018 saw the tokenization of real estate in Manhattan, where a luxury condo was tokenized and appraised at $30 million. [5] In 2019, Blockchain Credit Partners (BCP) became the first company to tokenize high yield asset backed private credit. The tokens issued by BCP represent ownership in high yield, secured asset backed debt that offers monthly cash flow to investors. [6]

According to the World Economic Forum, almost 10% of global GDP is expected to be on the blockchain platform by 2027 at the current rate of market growth – that’s $24 trillion. [7]

Market Developments

As discussed in a previous article, Tokenization is disrupting the financial markets by breaking down borders. Tokenization specialists, Juergen Hoebarth and Alan Wunsche, the CEO of Tokenfunder are hoping that tokenization will democratize finance and expand access to global retail capital. [8]

The surge in the demand of gold due to stock market crash in March caused by Covid-19 has created unique opportunities for investors looking to invest in tokenized gold. Tether Gold, a leading gold backed token launched in January 2020, touched an hourly trading volume peak of $13 million on the 30th of April.

“There is significant interest from hedge funds and professional traders in using Tether Gold to diversify their portfolio with gold, calling the yellow metal an asset that is considered in a growth trajectory for the next period”.
Paolo Ardoino, CTO at Tether, in a statement to CoinDesk [9]

Not just gold, the Covid-19 pandemic has resulted in a surge in the demand of tokenized and digital assets. [10] Expanding upon the opportunities that tokenization is creating for the investors.

“A good example of this is a project called Paperchain. They are tokenizing Spotify royalties specifically targeted at small and medium success artists, so the idea is to create a way forward for artists who are successful but not successful enough to make it big in the traditional music industry.”
Rune Christensen, CEO of Maker [11]

The possibilities of tokenization are increasing and in March 2020 the Nomura Research Institute (NRI) in Japan became the first platform to offer tokenized bonds directly to Japanese investors. NRI aims to expand the tokenization market specifically in Japan and in Asia in general. Two tokenized bonds with combined value of 30 million Yen were issued. [12]

Another new development in the market happened in USA where Securitize, AltoIRA and CityBlock Capital came together to sign a deal to tokenize individual retirement account (IRA) investment. The tokens will represent interest in $10 million worth NYCQ, which is a venture arm of CityBlock Capital. The CEO of Securitize is of the opinion that such deals will increase the exposure of investors in tokenized assets. He  stated:

“Issuers of digital securities will now have direct access to a new and massive source of capital connected to the Securitize platform, while IRA investors will have an opportunity to easily invest in deals they would typically not have access to.”
Carlos Domingo, Co-Founder and CEO at Securitize [13]

Examples of Assets That Can Be Tokenized

  • Real estate
  • Gold & Precious metals
  • Works of art
  • Physical and digital collectibles
  • Corporate and high yield private debt
  • Bonds
  • Equity
  • Collectible items
  • Intellectual property & patents
  • Sports teams, athletes and their contracts
  • Music – Contracts of performing artists
  • Commodities such as oil
  • Licences
  • Certificates

Concluding Comments

Be it traditional form of investment such as real estate, securities and gold or completely unconventional investments such as music contracts, asset tokenization is creating exciting opportunities for investors and therefore in light of what has been presented above it can be said that asset tokenization is providing opportunities where they didn’t exist before. Tokenization has grown in both value and volume and with market cap at $52.7 million; it is set to take off in the coming years. Tokenized assets were discussed at World Economic Forum this year and recognition at this stage is only going to increase the market interest. Investors have for the first time, an opportunity to invest in different classes of assets and diversify their investment portfolio in a manner that wasn’t conceivable before.

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