The tokenization is a type of method wherein the rights to a tradable asset is converted into a digital token, represented in the blockchain that makes the financial system more efficient, accessible and democratic. While blockchain itself provides the technology constructs to facilitate transfers of rights, ownership, and trust in the network, it is in the digitization of value elements where asset tokenization is essential.
The asset tokenization creates new business models and synergies from the network participants that did not exist before. Property owners can now digitize their assets in exchange for cryptocurrencies. With this, they could be able to bypass the expensive, exclusive and locally regulated capital-raising process that is required by venture capitalists or banks. This opens up a whole new channel for property owners who owns anything between say 3 to 20 properties, a sizeable portfolio but not big enough for fund managers to consider taking it under their care.
Some of its benefits are:
- Transaction is much faster due to the automated exchange that lowers transaction costs while increasing settlement speed and faster deal execution.
- Reduces the friction and overhead costs in the management of tokens. Since investors can purchase tokens that represent small percentages of the underlying assets, it will also open the way for a significant reduction of minimum investment amounts and periods. This also eliminates the cost of non-value adding operations.
- Creates more transparency. It clearly shows an immutable record of ownership, who you are dealing with, your rights and every transaction associated with the underlying property of a tokenized asset.
- Enables more efficient marketplaces and access to additional capital. It will help in connecting the real estate owners and developers in more sustainable marketplaces that expands the distribution to a broader and more diverse investor group.
The revolution of the real estate with asset tokenization will add more benefit to this industry. It has the potential to democratize the economy and make it more relevant, fair and secure for all market participants.