Pandora Protocol: Bringing Real Value To Illiquid Real-World Assets Via Tokenisation
Tokenisation is on its way to revolutionise the way we invest. Tokenisation has brought disruption across industries due to its potential of bringing billions of dollars of real-world value to real-world assets.
With the help of a blockchain token representing a real tradable asset, tokenisation of assets significantly reduces the friction involved with buying, selling, and trading securities. It empowers the asset owners with more transparency, accessibility, and cost-effectiveness.
The biggest advantage of tokenisation is the added liquidity to real-world, illiquid assets. Assets such as fine art or exotic cars, which are not presently traded electronically and those in need of increased payment transparency, can be traded on a secondary market if the user’s choice through tokenisation.
Tokenising Real-World Assets To Govern The Economy
Real-world assets like property rights or stock certificates are currently paper-based symbols of ownership backed up by our legal system. Digital assets allow these paper-based symbols to be transmuted on to a blockchain to benefit from its multitude of benefits.
All kinds of assets can be tokenised, ranging from real estate, art, fancy cars, commodities, and even virtual assets, like securities. As per the World Economic Forum’s research, items such as wine bottles, pills or jewellery are the early examples of tokenised assets. These articles can be tracked in real-time to recognise, identify, and prevent potential misuse. They are usually a part of the supply chain from a producer to a consumer.
When we talk about the tokenisation of real estate, it can help fractionise a property’s ownership into several tokens, with each token representing a property share. These tokens become accessible to a much larger investor base and can be efficiently traded on various exchanges. This can help lower entry barriers and reduce the friction between sellers and purchasers.
Tokenisation will ensure stability through times of economic uncertainty and financial volatility. It can help minimise bureaucracy withholding, storing and transferring the asset.
Benefits Of Tokenisation
- Increased Liquidity: An excellent example of a potentially high-value but extremely illiquid asset is a fine art. They are scarce and thus enjoy the benefit of the so-called “liquidity premium” — the theoretical assumption that low-liquidity assets yield higher ROI over time. However, when collectors think about selling their art, they are often disadvantaged as there may or may not be a robust and scalable market of buyers to fetch a fair value for the art. This creates a sub-industry of intermediaries who focus on accommodating collector-to-collector or artist-to-collector exchange: galleries, dealers, auction houses, etc., to accommodate the right price, leading to significantly higher transaction costs. A similar pattern can be observed in the case of other illiquid assets, such as real estate. Tokenisation allows such illiquid assets to enjoy the benefits of increased liquidity without facing any transactional drawbacks. Asset tokenisation eliminates the need for costly transfer intermediaries. It preserves the asset’s liquidity due to its capability of fractional ownership, which makes it easier to list the asset on numerous high-availability driven exchanges.
- Improved Accessibility:
Financial or regulatory constraints make it highly difficult for common investors to reach the highest profitable assets. Low access, high-return assets including big-budget movie production, sports car collection, investments in distressed foreign assets, and the renting and purchasing of multifamily real-estate can help earn an extremely high return on investment in a considerably short time period. However, the upfront, direct costs associated with these kinds of assets are sky high and immensely risky.
In such a case, asset tokenisation paves the way for smaller investors to invest in riskier but highly profitable assets with relatively low capital for investment. Like crowdfunding, tokenisation establishes a model where the group of investors buying or funding the asset also enjoys the financial benefits of their participation. Successful examples of improved accessibility fuelled by tokenisation include the production of the film “Papicha” and “CurioInvest”, a company working towards tokenisation of rare supercars.
3. Enhanced Transparency:
Lack of reliable and readily available information regarding asset returns, ownership history, sale history, potential return margins, etc., which are required to make better informed financial decisions are difficult to procure with many high-value assets. This lack of information is evident when dealing with foreign assets or when an investor cannot personally inspect an asset before the deal. Tokenisation, here, allows for the open tracking and auditing of all these crucial records due to the fundamentally public nature of the blockchains.
Tokenisation enables investors to see the ownership record and returns in interest or dividends according to the asset’s smart contract logic. Moreover, due to celebrity ownership or a rare bloodline, certain assets such as collectables or racehorses may become more valuable. Immutable records are possible with blockchain provenance monitoring, which decreases investment security risks by eliminating record-keeping trust. These features can dramatically reduce the risk of fraud in several industries, including high-priced luxury items like wine, caviar, fashion, and art pieces.
4. Faster and Cost-effective Transactions:
Transaction of tokens takes place with smart contracts, which are software algorithms that are integrated into a blockchain with trigger actions based on predetermined parameters. This automates certain aspects of the exchange process, thereby reducing the administrative and operational burden of buying and selling assets. With fewer intermediaries between the transactions, the deals are executed faster with a fairly low transaction cost. Blockchain technology streamlines the process of compliance, security, and legal matters, thereby saving time and removing procedural friction.
With the digital ledger provided by the blockchain infrastructure, one can easily record each shareholder position. This significantly improves the efficiency of many administrative processes, such as profit sharing, voting rights distribution, and buy-backs for the issuers. Also, a secondary market facilitates the accounting processes of professional investors, including net-asset-value calculations. As the market begins to recognise the digital ledger as the “golden copy” of records, reconciliation will become redundant. The interested investing parties would then rely on and accept this record, speeding up the transaction process at highly optimised costs.
Top financial institutions realise and understand the potential of financial asset tokenisation. We observe many initiatives for turning legacy asset classes, such as corporate securities, into lively digital markets. The value chain is advancing right from the origination of trading assets to Corporate Trusts.
We are steadily moving forward in the journey towards successful real-world asset tokenisation. Undoubtedly, this will dramatically change the finance dynamic for investors and owners of numerous asset classes for the years to come.
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