Asset Tokenization – A promising opportunity

Updated: Jun 18

An additional alternative investment opportunity has been created in the last few years. Tokens have the potential to be used as portfolio diversification.

The market shows us that tokenization offers many options. Tokenization issues a token that digitally represents an asset or ownership of an asset. (1) Examples of such assets can be gold / precious metals, real estate, intangible assets such as stocks and shares.

ICOs were the first form of disruption caused by blockchain technology. This allowed startups to raise money and investors could often start trading their investments from day one.

Tokenization is celebrated as a game changer because it has more to offer investors than ICOs. Investor interest in ICOs has declined over the past two years as investors recognize that ICOs are often not backed by anything essential, while tokenized assets and STOs offer the best of both worlds as tokens are the most efficient trading and settlement process the blockchain platform with combine real world assets. In addition, investors can use their token to diversify their portfolio with a variety of unique asset classes in which they could not previously invest.


Tokenization market growth and value

Investor interest in tokenization has increased in recent years. According to the Tokenization Market Report, token asset market value growth has been close to 22.54% in the past four years and is expected to reach an estimated $ 4.2 billion by 2027. (2) Another report released by the Security Token Group. The total market capitalization of security tokens in January 2020 was $ 52.7 million. (3) These figures show that investors are interested and confident in the token asset markets.

A quick look at the market shows that almost any asset can be tokenized as long as investors are willing to invest in it. Take gold, for example. Digix was the world's first asset tokenization company to issue gold-covered tokens. (4)

2018 saw the tokenization of real estate in Manhattan, where a luxury condo was tokenized and appraised at $30 million. (5) In 2019, Blockchain Credit Partners (BCP) became the first company to tokenize high yield asset backed private credit. The tokens issued by BCP represent ownership in high yield, secured asset backed debt that offers monthly cash flow to investors. (6)

According to the World Economic Forum, almost 10% of global GDP is expected to be on the blockchain platform by 2027, given the current market growth - that's $ 24 trillion. (7)


Market Development

As it has been explained in various articles, tokenization disrupts the financial markets by lifting borders. Tokenization specialists Jürgen Hoebarth and Alan Wunsche, CEO of Tokenfunder, hope that tokenization will democratize finance and expand access to global retail capital. (8)

The surge in gold demand caused by Covid-19 due to the March stock market crash has created unique opportunities for investors wishing to invest in token gold. Tether Gold, a leading gold token launched in January 2020, peaked at an hourly trading volume of $ 13 million on April 30.

Not just gold, the Covid19 pandemic has led to an increase in demand for tokenized and digital assets. (10) Expanding upon the opportunities that tokenization offers for the investors.

The possibilities of tokenization are increasing and in March 2020 the Nomura Research Institute (NRI) in Japan was the first platform to offer token bonds directly to Japanese investors. NRI aims to expand the tokenization market specifically in Japan and Asia in general. Two token bonds with a total value of 30 million yen were issued. [11]


Tokenization examples: Assets as tokenized securities

· Real estate

· Gold & Precious metals

· Works of art

· Physical and digital collectibles

· Corporate and high yield private debt

· Bonds

· Equity

· Collectible items

· Intellectual property & patents

· Sports teams, athletes and their contracts

· Music – Contracts of performing artists

· Commodities such as oil

· Licences

· Certificates

In our case, real estate tokenization refers to recording and transacting all the interaction of the property via security tokens. Each token represents the underlying property. Tokenizing a property and further storing its data on the blockchain adds flexibility in the conventional model of real estate.


Asset tokenization – a promising new investment opportunity

Be it traditional form of investment such as real estate, securities and gold or completely unconventional investments such as music contracts, asset tokenization is creating exciting opportunities for investors and therefore in light of what has been presented above it can be said that asset tokenization is providing opportunities where they didn’t exist before. Tokenization has grown in both value and volume and with market cap at $52.7 million; it is set to take off in the coming years. Tokenized assets were discussed at World Economic Forum this year and recognition at this stage is only going to increase the market interest. Investors have for the first time, an opportunity to invest in different classes of assets and diversify their investment portfolio in a manner that wasn’t conceivable before. It is clear that this technology has the potential to revolutionize many industries, including real estate.


Education and investor protection are vital elements of the ecosystem, hence at CEC we work a lot on providing more solutions to increase transparency in the digital real estate industry. Investors who risk with their time and money deserve a seamless discovery process connecting to the most reliable and trustworthy digital real estate advisors across the globe.


References


(1)IOSCO : 2019 Report

(2) MarketWatch : Tokenization market key facts and forecasts

(3)Medium : Security token Market Report January 2020

(4)Medium : Digix and Constant

(5)Forbes : A first for Manhattan

(6) PRNewsWire : Worlds first tokenized private credit offering

(7) NuWireInvestor : Asset tokenization emerging trend investment 2020

(8)Medium : 2020 – 2030 digital assets outlook

(9) CoinDesk : Interest in gold backed token trading grows amid supply

disruptions

(10) Coin Telegraph : The case for a surging tokenization demand following

Covid 19 pandemic

(11)Securities.io : NRI issues first Japanese tokenized bond


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