The tokenization of real-world assets is one of the most exciting blockchain innovations, in which anything from real estate to fine art and bottles of wine is represented as digital tokens on a decentralized ledger. It’s a technology that has the potential to revolutionize how people invest in many new markets and industries, ensuring greater accessibility and transparency while injecting liquidity into previously illiquid assets.
RWA tokenization refers to the process in which a real-world asset with tangible value is converted into multiple digital tokens, enabling fractional ownership. By tokenizing different assets, investors benefit from increased utility and accessibility.
The most obvious benefit is that tokenized assets can be traded quickly and easily as fractional shares on a decentralized marketplace. Tokenization enables previously indivisible assets, such as a luxury apartment, to be split into numerous “shares” that cost a fraction of the price of the property itself. In this way, markets that were only accessible to the richest investors suddenly opened their doors to less wealthy individuals, who can now buy tokens that represent as little as a 0.1% share of the asset it represents.
Because RWA tokens are hosted on the blockchain, they can be bought and sold with crypto in seconds without any intermediary, enabling simpler and more fluid transactions.
The process massively improves the liquidity in any given market. For instance, in the fine art market, it is exceedingly difficult to sell a multi-million dollar painting quickly. Such sales have to go through a convoluted process, with the painting in question being offered for sale to trusted art dealers, who will take time to find a buyer. But when a painting is represented as tokens, it can be bought and sold immediately. As such, tokenization transforms illiquid assets into liquid ones.
Real Estate Tokenization
One of the most often cited examples of RWA tokenization is the real estate market, which is one of the world’s most valuable and stable asset classes. Despite this, the real estate market has always faced challenges in terms of accessibility and liquidity, and swift transactions are extremely uncommon.
The tokenization of real estate transforms this. With a platform such as Blocksquare, property owners can transform a house, apartment, hotel, commercial property, or anything else into digital tokens that represent a proportional share of that asset. So if a hotel is split into 10,000 tokens, each token would amount to a 1/10,000th share of that building.
Blocksquare’s platform was recently cited as a case study in the Enterprise Ethereum Alliance’s latest Ethereum Business Readiness Report. It provides comprehensive tools for tokenizing physical property and has a vision of creating hundreds of new real estate markets all over the world. Besides these tools, it has also created a white-lable platform that can be used by real estate companies and offers to quickly spin up their very own, branded marketplace for tokenized real estate investments.
With Blocksquare, properties can be divided into a maximum of 100,000 tokens that are issued on the Ethereum blockchain. Its smart contracts identify the property in question and enforce the transaction rules related to that offering. As part of the tokenization process, Blocksquare creates a public corporation resolution that’s mandated by token holders to hold the title for that property, providing legal protections to investors should any disputes arise. Blocksquare’s smart contracts also detail the royalties that each token holder is entitled to while enforcing prompt payment of those royalties according to the predetermined schedule.
Investors stand to gain additional benefits aside from the royalties. For instance, anyone holding Blocksquare’s tokens can access the Oceanoint.fi DeFi protocol and earn passive income by staking them, providing liquidity, and more. The token holders also gain voting rights within the decentralized autonomous organization or DAO that manages the property in question.
Traditional Stocks, Shares, Bonds & Equities
One of the oldest asset tokenization protocols around is BitBond, which is focused on creating tokens that represent traditional bonds and other investments.
With BitBond, businesses can create and issue tokenized bonds, shares, equities and other assets on blockchains including Ethereum, Stellar and Polygon, and sell them to investors. These assets can alternatively be used as collateral for loans, meaning companies don’t have to permanently give up equity to raise funding, while investors can lend their capital to earn interest via the repayment of those loans.
Supply Chains
The supply chain is another interesting use case for tokenization, but the focus here is more on establishing transparency than creating investment opportunities. For instance, in the diamond industry that’s dogged by controversy around so-called “blood diamonds” mined in war zones, De Beers has created a decentralized ledger called the Everledger blockchain.
With Everledger, every diamond produced by De Beers is represented as a digital token, allowing its authenticity to be traced. These tokens are essentially digital twins of each diamond, and provide a secure, immutable and transparent record of its ownership and origins. As such, De Beers is uniquely able to reassure buyers that its diamonds are ethically and sustainably sourced.
A Superior Investment Landscape
Although this is a pretty extensive list of real-world asset tokenization examples already, it really represents just the tip of the iceberg in terms of the myriad applications of this technology. As tokenization matures and becomes more established, it’s not unrealistic to think it could ultimately be adopted by virtually every kind of asset class, creating a more dynamic investing landscape that’s open to almost everyone.
RWA tokenization improves accessibility, streamlines transactions, brings more liquidity, and increases transparency, while enforcing the rights of token holders. In other words, it offers so many benefits that it’s poised to transform the act of investing and usher in an era of unprecedented opportunities.
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