Blockchain technology has grown to become one of the most revolutionary technology concepts of this day. We’ve seen it change the way we view different industries and spaces, and it is expected to be one of the building blocks of the internet of the future - along with concepts like the internet of things (IoT) and machine learning.
With benefits such as transparency, decentralization, and immutability, tech experts have praised blockchain and what it brings to the table. These properties - as well as many more - have brought it to the forefront of financial innovation. And with blockchain looking to break into pretty much every field, it has become obvious that it will have a place in the finance space as well.
One of the areas where people are most excited about when it comes to blockchain and finance is asset management. Regardless of the organization, asset management is an important concept. However, there’s a need to improve the existing asset management landscape to provide a more equitable playing field for everyone - a field that promotes transparency, speed, and liquidity.
This is why many companies today are increasingly turning to tokenization to help meet their asset management needs.
What is Tokenization?
There is a lot of technicality to tokenization. However, the primary point of it is to convert assets - both physical and non-physical - into a digital form. Using a blockchain, these assets can be transacted smoothly from there.
Tokenization has already become a hit in different industries. These include real estate, art, stocks, and even finance. Today we’re seeing different types of tokens being built, all with different objectives and goals. Recently, the market was captivated by Volt Inu - a crypto token whose goal is to improve investors’ wealth by helping to diversify their investments across the crypto market.
Volt Inu’s developers have developed a multifaceted investment strategy that includes putting funds in different protocols - from staking and mining to stablecoins and liquidity farming. By tapping into multiple sources of income, the asset ensures that holders can maximize their wealth.
Tokenization began to gain popularity a few years back. The process involves placing assets on the blockchain, making it possible for their values to be divided, and reducing the barriers to entry for investors.
Imagine you have a real estate property you’re looking to sell. But, due to its size, the property is pretty hard to move because there’s no market for it. With tokenization, you can put your property on the blockchain and break its value into small parts that can now be bought by retail investors.
It should be noted that tokenization itself didn’t exactly start with cryptocurrencies. The concept has been around since the 70s when most people used it to improve security protocols for financial services companies. Several firms used tokenization to protect confidential and sensitive data - PINs, credit card details, financial statements, and more.
Why Should Tokenization be Adopted?
Blockchain-based tokenization offers several prominent benefits to individuals and companies willing to give it a try. These include:
Optimal Asset Liquidity
Perhaps the most critical benefit of tokenization is liquidity. Asset tokenization helps to make the asset management process more streamlined, reducing the need for lengthy due diligence processes when making transactions.
With tokenization, investors will be able to take their tokens and sell them off at the secondary market whenever they want. The process has been made simple, and this simplicity builds efficiency. Even better, investors won’t need to worry about extensive redemptions and other associated costs.
While it remains in its earliest stages, tokenization could become a bedrock of the global financial system thanks to its simplicity and efficiency.
Trading assets via traditional methods can be time-consuming. Depending on the asset’s size, some of these transactions could take months to be processed. External entities will also be brought into the transaction process to ensure checks and balances, and they will need to check the eligibility of several investors in the process.
Over time, the introduction of these external entities will increase transaction times and even costs - at the end of the day, they’ll get a cut of the profits too.
Tokenization allows you to take out all of these unnecessary steps. The introduction of the blockchain optimizes immutability and transparency, meaning that everyone knows who they’re in business with. You can conduct proper checks much more quickly and not have to rely on any third party handling the due diligence for you.
Most blockchains that are perfect for tokenization are ideal because of smart contracts. These are self-executing contracts that carry out specific actions once certain conditions have been met.
Thanks to smart contracts, we can finally integrate automation into the asset management process. Intermediaries are taken out, we can optimize costs, and transactions can be processed in minutes.
Industries Where Tokenization Can Be Valuable
As explained earlier, there are several industries where asset tokenization can be of great benefit.
In finance, tokenization can improve payment and settlement speed across the board. Investors can make quicker decisions and take advantage of shifting market trends to optimize their profitability. With transactions being processed in real-time, this presents a massive opportunity for everyone involved.
Tokenization also makes sense in real estate, allowing people to sell their properties for parts. Whether they would like to sell in part or in full, they can convert the asset to a token and sell it easily. And so on.
Regardless of the space, you find yourself in, the ability to convert all types of assets into the digital space and transact with it will come in handy.