Insights on asset tokenization on the Algorand blockchain
In this article, I will be covering the details about the Algorand Standard Asset (ASA) feature in Layer-1 in Algorand 2.0 along with potential use cases as well as share how I think it will be helpful for implementation in real world scenarios.
In the current economic scenario, there are many issues when it comes to the digitization of assets with the challenges ranging from accessibility to global digital markets to latency in transaction settlement to ease and enforceability of asset controls to efficiency of compliance and reporting to the recently observed dilemma to issue digital currency in place of printing huge sums of money to counter the economic imbalance caused due to the COVID-19 pandemic. As we all know by now, all the countries took the latter option but major economies are looking at introducing Central Bank Digital Currency or are exploring issuing digital currency on the blockchain. With the new suite of features built directly into layer 1, the Algorand blockchain has gone through an upgrade to allow expansion of the range of decentralized applications and processes that can be built on the Algorand platform without compromising the security or performance, which Algorand was already providing.
Asset tokenization on Algorand is envisioned to solve some of the challenges mentioned above and provide benefits such as increased core security, simplified usage, as well as transaction finality on a high performance blockchain by providing a standardized, Layer-1 mechanism to represent any type of asset on the Algorand blockchain which include fungible, non fungible, restricted fungible and restricted non fungible assets. These are the inherent characteristics of Algorand Standard Assets. With asset spam protection that prevents unknown assets that may have tax, legal, or reputational risk from being sent to users without their explicit approval (users must opt-in to accept new assets), the privacy and security of users using ASAs have been taken care off.
Compared to others, ASAs are fast and secure as they are built directly into Algorand’s Layer-1 ASAs, require low cost to execute, are easy and simple for developers and enterprises to issue and are interoperable with all assets issued on Algorand. With unique functionality of optional and flexible asset controls for issuers and managers for business, compliance, and regulatory requirements, tokenization on Algorand provides Role Based Asset Control (RBAC). This includes optimal provenance with option to quarantine asset accounts for investigative purposes, better compliance and reporting by forcing transfer of an asset where legal or other regulations require it, enhanced vigilance with whitelist model for privileged asset transacting, which allows only specific addresses that have been approved to transact within a specific asset,higher flexibility by providing customized options for asset reserve models for business requirements and off-chain asset documentation included in on chain asset definition. Relevant use cases which can take advantage of this feature are:
- Asset tokenization: With ASC1s, the option to customize standard assets as well as the interoperability amongst tokens issued on the Algorand blockchain, tokenizing assets has been steadily gaining popularity. Republic was the first to build digital assets on Algorand with the others following suit. The DS Protocol of Securitize, an asset tokenization platform, has now been supported on the Algorand blockchain to give issuers using Securitize the option to choose a high-performance platform option for issuing, trading, and performing corporate actions using digital securities.
- 3rd party asset issuance: By allowing third party asset issuance on Algorand, access to investments for tokens issued on Algorand has been enhanced along with providing options for trading as well as instant transaction confirmation. Tether (USDT) was the first and most liquid stablecoin to leverage this feature and will be providing instant confirmation, micro payments and automatic wallet support. By fully integrating Algorand across all of its products, Blockchain.com envisions to provide support for tokenization and issuance of any type of asset on the Algorand blockchain, in a standardized way.
- Democratize access to investments: By providing greater accuracy, access, transparency, provenance and security, ASAs have democratized access to investment on the Algorand blockchain. Platforms such as AssetBlock, Securitize are issuing ASAs. The World Chess organization, by using Algorand Standard Assets and Securitize’s digital compliant solutions, plans to raise funds by first issuing a digital token on Algorand’s Blockchain. AssetBlock is using Algorand for its technological foundation to ensure accuracy, access, transparency, and best-in-class security standards are met to provide services such as record of ownership of real estate assets, asset-related information, proof of loan transactions, and key loan documents on its platform.
- Disintermediate cross border transactions: Removing intermediaries, instantaneously settling cross border transactions as well as reducing the costs and time for transactions are characteristics of ASAs in the upgraded version of Algorand over and above trustless, transparent and highly secure network, which Algorand was already. This makes Algorand a feasible choice to be taken up for cross border transactions use cases. Realio Issuance Network envisions to leverage ASA to launch the RST token , a hybrid utility/security token, on the Algorand blockchain to enhance its network which is a layer 2 solution built for compliantly issuing-on and interconnecting decentralized ecosystems across global jurisdictions. By supporting programmable and redeemable e-money on the Algorand Protocol, Monerium has announced numerous B2B use cases, including cross-border transactions in euros. IBMR.io has partnered with Algorand to support the Asia Reserve Currency Coin (ARCC) via the ARCC.one platform, which is designed as the world’s first ‘micro asset’ to enable the financial inclusion of the urban working poor in Southeast Asia.
Conclusion & Insights
The assets being created and/or issued on the Algorand blockchain will have the advantage of a secure, scalable, transparent and highly accessible blockchain network; no wonder there has been a spike in the number of projects choosing Algorand to issue/create their respective assets. ASAs can not only democratize access to investments and help in removing intermediaries required for cross border transactions, but also help countries which are in economic distress to issue digital currencies in a standardized and regulation compliant format.
Marshall Islands’ Marshallese sovereign (SOV), built using Algorand technology will circulate alongside the US dollar and help the Marshall Islands efficiently operate in the global economy. Interesting times ahead to observe how the final version of assets being issued on Algorand 2.0 turn out, it will be detrimental to the next phase of expansion of the Algorand community .
