The term “Tokenization” has gained popularity over the past year. Several TradFi companies have been discussing the concept and within the crypto industry, Real World Assets (RWA) is now one of the biggest narratives in today’s bull market.
As a blockchain platform inserted in the middle of this narrative, we often get asked: why tokenize?
Why would we need tokenized versions of publicly-listed stocks like Apple and Tesla, when it’s so easy for people in Western countries to open a brokerage account with the likes of eToro or Robinhood and simply purchase $AAPL stock?
This article explores three reasons to tokenize beyond the efficiency enhancements brought about by blockchain technology alone. We’re diving into use cases that can change people’s lives:
- Lending & borrowing but for retail investors
- Non-Restricted Market Hours
- Global accessibility to financial markets
Source: Google Trends as of Feb 21, 2024
- Democratized Lending & Borrowing
A common act among high-net-worth individuals and institutional investors who have access to prime brokerages is the use of securities as collateral to borrow money. Buying one asset class by borrowing against another offers benefits like tax advantages, cross-asset margining and increased leverage.
Traditionally, this practice has been exclusively available through financial institutions, primarily private banks, which retail investors don’t have access to. Until DeFi came along.
Platforms like AAVE, Compound, and SummerFi have opened up lending and borrowing to the retail market. The interest in the service was so high that lending and borrowing became the second largest category in DeFi, with $36.5 billion in Total Value Locked (TVL) as of March 15, according to DeFiLlama.
Source: DeFiLlama as of Feb 21, 2024
However, these protocols currently only offer lending & borrowing services with cryptocurrencies as collateral.
By tokenizing real-world assets on-chain, it becomes feasible to access these platforms and make traditional security-based loans available for retail investors.
Swarm is exploring opportunities to establish liquidity pools on DeFi protocols, potentially enabling users to purchase tokenized RWAs on the open dOTC and utilize them as collateral in DeFi for borrowing assets.
Want to invest in crypto ahead of the bull run without selling your stocks? For example, you could borrow against your $AAPL or $COIN stock to ape into Bitcoin, making for better capital efficiency.
Swarm will make it possible!
2. Non-Restricted Market Hours
In a globalized world, restrictions on market hours can pose challenges for investors in different regions.
For example, if you live in Southeast Asia and wish to buy American stocks, you must wait until nighttime when the market opens.
Tokenization is a no-brainer move in a globalized world, granting investors round-the-clock access to financial markets, just like we have with cryptocurrencies!
3. Global accessibility to financial markets
In many parts of the world, especially in developing countries, cryptocurrencies are already used on a daily basis.
Consider Argentina and Turkey. Both countries have faced high inflation rates in recent years. In February 2024, Argentina’s inflation rate was 276%, while Turkey’s was 64.9%. Cryptocurrency provides a more stable option compared to their national currencies.
Sources: Turkish Statistical Institute, Instituto Nacional de Estadística y Censos (INDEC)
Tokenizing assets enables people in these regions to effortlessly access the same financial products available in first-world countries, such as stocks and yield-bearing assets like bonds, while also remaining on-chain.
This accessibility empowers them to preserve wealth and even accumulate it more securely while also enhancing the general liquidity of financial markets.
Closing Thoughts
We often get asked about the benefits of tokenization. The usual answer people receive is about increased efficiency and reduced cost.
While these points are true, in this article we showed practical applications that tokenization brings, expanding financial accessibility for worldwide individuals.
DeFi protocols like AAVE and Summer.Fi initially pioneered innovation within the crypto world. Now, Swarm is actively building the infrastructure necessary to integrate RWAs into the blockchain.
About SMT
- You can buy and exchange SMT on Uniswap, MEXC, Gate.io (under the ticker $SMTX,) the Swarm platform and Open dOTC.
- For tokenomics and distribution, visit the SMT docs page.
- Deflationary measures and increased utility for $SMT were introduced in April 2023. You can find more details plus FAQs here.
- In August 2023, we announced that SMT holders will be able to stake their tokens against the tokenized securities listed on the Swarm trading platform to earn rewards. Read about staking here.
- For total circulating supply figures, use our API.
