Business

The True Value of Asset Tokenization Lies in Opening up Capital Markets

Asset tokenization provides a way to enable a substantial part of the world’s population to invest in capital markets. Everyone can benefit from global economic growth while offering liquidity to businesses.

Tokenomics is entering a new era, slowly moving away from ICOs and utility tokens into the age of regulated STOs and security tokens. Asset tokenization is said to become a mega trend unleashing a trillion dollar industry.

Everybody is talking about it, and a lot is happening, but many still wonder what’s the point. Increased Liquidity? Fractionalized ownership? Fair enough, but how is it going to change the world?

Asset tokenization will increase capital markets inclusion

The stock market allows investors to buy shares of companies. Real Estate Investment Trusts (REITs) enable investors to buy stakes in real estate portfolios that include a basket of different properties. Hence, we already have ways to fractionalize asset ownership.

But asset tokenization goes way further. If you buy an Amazon stock, as of today, one stock costs US$1,762. You can’t buy a fraction of one stock, at least not on the open market. Moreover, there will be brokerage fees and commission charges for every trade.

Likewise, REITs often have minimum investments. And even if they don’t, the brokerage will require investors to invest at least US$500, likely more.

While there is fractionalized ownership, it’s only accessible for those who can afford it. With tokenized assets, investors could buy a fraction of a stock; or a fraction of a property, for as little as US$10.

Take a look at Indonesia. The country has a population of 264 million people. Currently, only 400,000 of Indonesians own and trade stocks. The majority of Indonesians can’t afford it. Asset tokenization removes the minimum investment barrier and could give a much larger part of the population affordable access to capital markets.

Multiply that US$ 10 from above by hundreds of millions of people. That’s the real potential of asset tokenization. It’s a way to create wealth for people all over the world no matter their economic situation, unleashing enormous amounts of liquidity and directing it into capital markets.

Making illiquid assets liquid

This value proposition is especially valid for illiquid assets, like real estate, arts, or certain commodities. While many of these assets are still a closed door for retail investors, there are some initiatives that are trying to disrupt these industries.

Content creators are benefiting from tokenization as it removes the data from the hands of the giant platforms, and users are given back the control of their data. Brave Browser is an example of how digital advertising, enabling both parties – publilshers and users – to receive awards in the form of tokens. In the arts sphere, blockchain not only guarantees the intellectual property rights for digital arts,  tokenization and fractionalized ownership of artworks can make investments in art more accessible, and more widely available to investors.

Private equity and venture capital deals, for example, are only accessible for institutional investors and High Net Worth Individuals. “If you’re an average person you’re not getting access to some great private companies,” says Adena Friedman, CEO of Nasdaq. “And that’s one disadvantage that I’d like to see change over time.”

Asset tokenization could open up illiquid asset classes for the retail market. That would not only allow retail investors to invest in non-listed companies; it would also enable small and medium-sized businesses and startups to get access to additional funding sources.

While the potential of asset tokenization is enormous, the introduction and proliferation won’t be an overnight process. We are just now seeing the very beginning of an evolution.

But who would have thought 50 years ago that in 2019, we can send a text message from a New York coffee shop to a farming village in the Himalayas? The internet has provided almost everyone in the world with a means of global communications. Likewise, asset ownership could open up the world’s financial markets, allowing everyone to invest and benefit from global economic growth.

Lukas Hofer

Lukas J. Hofer is a business writer and has years of experience in financial services and international business. He has a proven track record working with leading international companies and currently works as independent business consultant in Asia.

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