Tokenization could boost the World economy, but we need to fix these barriers
Assets tokenization is one of the most promising technologies of nowadays, that can boost the World economy essentially. This belief has a support of arguments which difficult to challenge. At the same time, we should admit, without legislative adoption any good idea could be buried in misunderstanding and bureaucratic delays. Let’s consider, what a real profit for countries to adopt blockchain based tokenization, and what kind of problems should be solved on the road.
Imagine, that one trading terminal gives you a window to a whole spectrum of the world’s assets without any bureaucratic restrictions. Furthermore, you have an opportunity to buy and sell any class of assets, including real estate, commodities, gold, bonds, stocks and so on having just a few thousand bucks under management. It seems fantastic, doesn’t it?
In fact, such progress is absolutely possible, thanks to the fast development of smart contracts.A smart contract is a key point, because of its unique ability to transfer and self-execute any property rights within safe and trustless decentralized blockchain database. Furthermore, any tangible or intangible assets possession rights could be divided into small units. These units (tokens) we can freely buy and sell within local and global markets, managing multiasset portfolios without limitations.
It’s hard to predict the full impact on the global industries, but I’m sure, it’s going to be tremendous. Why do I think so? It’s easy. Tokenization gives to the world economy unprecedented inclusiveness and liquidity. Now, if somebody has $2000–5000 he or she could invest mostly in deposit depriving money mobility and efficiency. Smart contracts let us invest practically in any class of assets collectively, by dividing expensive assets into shares.
For example, if some building costs $1000000, it’s hard to sell it quickly, because of a lack of liquidity and deep middlemеn involvement. But we have an alternative. The property rights on the same building could be tokenized into 1000 shares by $1000 for each. By such a step, you can involve thousands of new potential buyers, who can’t afford the whole building, but want to diversify own portfolio by the attractive property.
Let’s summarise the positive impact of tokenization on the real economy:
Increased liquidity will help to create a fair value of large groups of assets and accelerate the pace of economic growth;
Competitiveness. A better involvement of ordinary people in economic life will improve the competitive environment, leading to higher effectiveness and growth;
Unique money mobility will push up foreign investments in the developing countries, that will reduce inequality and make new prosperity points on the World map. Tokenization is able to erase any borders and restrictions for capital flow;
Lower risks. Small private investors don’t have enough opportunities to diversify their portfolios. They are limited in investment decisions and strongly localized in their respected countries. Tokenized assets solve these problems.
Investment giant PGIM in its recent report explain how tokenization may bring real liquidity to the real estate industry.
“The combination of blockchain ledger technology and smart contracts could, in theory, allow the securitization of real estate assets at the single asset level, broken down into practically limitless fractionalized units accessible to retail or institutional investors”. As a successful case, they give an example of Australian real estate company BrickX, that “breaks down properties into 10,000 fractional units which are sold to investors via an initial offering and can then be traded on in-platform secondary market, reducing the illiquidity often associated with real asset investments.” Especially strong impact tokenization may have on the countries with illiquid real estate markets.
The benefit of tokenization is obvious, but we should admit, we can’t make an effective market without additional legal acts. The full penetration of technology needs special regulation. Today, I see important issues that could be solved just in a strong partnership of tech-companies and governments. So, we need to promote several legislative initiatives:
The definition of a smart contract and tokenized assets. In fact, the transfer of property rights within a distributed database needs to be regulated clearly;
Digital identity should be also described and regulated. In the same time, DI needs special blockchain infrastructure, connected with the government’s databases;
The collective property rights of internal and foreign investors should be clarified. It’s not a question, that KYC and AML procedures are inevitable.
Of course, a process of adoption needs time and political will. Explaining the benefits of tokenization we can essentially accelerate this process. I believe, the pioneering countries will win an additional bonus in the form of economic growth and people’s loyalty. They could become an inspiring example for other governments contributing to the creation of worldwide rules and global prosperity.
#tokenization #smart-contracts #blockchain #economy
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