May 28, 2021
Bitcoin was the first use case of blockchain, but the reach of this innovative technology is immense as it doesn’t boil down to a money system only. Blockchain can do a lot of things, but its game-changing potential has to do with its ability to tokenize everything, including digital and physical assets.
While the impact of blockchain and its ability to tokenize assets is not fully perceived at the moment, this will become the norm in the years to come, as major players of traditional finance are gradually adopting the technology.
In this guide, you will learn about asset tokenization and the role it will play in the future of finance. You will also discover a list of tokenized assets operating on the Algorand blockchain.
Tokenization will revolutionize the way we invest and trade assets, but what is it, and what does it promise?
Tokenization refers to the issuance of blockchain tokens representing real tradable assets, whether it’s about company shares, commodities, art, real estate, and money, among others (and yes, “among others” can refer to everything).
Thus, blockchain can transform many industries and the way investors interact with businesses and brokerage firms. Thanks to its decentralization feature, blockchain can enable the creation of borderless networks where investors, businesses, and communities can interact with each other without a central authority.
Tokenization is poised to become the next big thing in the financial markets because it provides the following benefits:
Cryptocurrencies have experienced an impressive evolution, but their underlying technology is getting to traditional markets as well. The most likely scenario is that tokenized assets will become the essential mechanism through which investors will get exposure to various markets, including equities, commodities, real estate, and art. The benefits are too evident to be ignored, and many traditional finance players are already rolling out tokenization services.
For example, SIX Swiss Exchange – the principal stock exchange in Switzerland – is developing a proprietary blockchain platform to tokenize traditional securities, such as company shares. The new platform is run by SIX Digital Exchange (SDX).
SIX CEO Jos Dijsselhof commented:
“This is the beginning of a new era for capital markets infrastructures. For us it is abundantly clear that much of what is going on in the digital space is here to stay and will define the future of our industry. The financial industry now needs to bridge the gap between traditional financial services and digital communities.”
Thanks to the tokenization of assets, financial markets will become more active, fair, and transparent. The emerging trend can reach every part of all peripheries of traditional finance, including venture capital.
During a World Economic Forum (WEF) panel organized last year, participants concluded that we’re advancing from isolated token assets to a whole token economy, with tokenization being capable of enhancing infrastructures without causing systemic financial risks.
This may be indeed the beginning of a new era for financial markets, but there are several challenges to be addressed until wider adoption is reached, especially when it comes to tokenizing stocks or real estate:
Considering the major regulatory challenges, the wider adoption of tokenized assets is expected to be gradual, though regulators won’t be able to withstand the new trend but rather lead it in a certain direction.
Tokenized assets are much faster, flexible, secure, and convenient compared to traditional assets, and the Algorand infrastructure takes these attributes to the superlative.
Some types of traditional assets are illiquid by their nature, e.g. real estate, art, or private equity. On the other end, tokenized assets can ensure liquidity and greater access to a broad range of investors.
When it comes to traditional assets, including equities, fixed-income (bonds), real estate, commodities, and art, their blockchain-based digital representations could automate processes, reduce costs, bring more liquidity, and ensure a better user experience when it comes to investing and managing these assets. All in all, there is a big difference between traditional assets and their tokenized versions, and the latter are the clear winners.
Algorand enables the tokenization of all types of assets by facilitating the creation of fungible tokens (which can be used for tokenizing commodities and bonds), non-fungible tokens (which work best for art, real estate, and some precious metals), as well as security tokens (they are ideal for equities).
The Algorand platform has already been implemented for tokenization use cases, which helped businesses and organizations streamline processes.
Businesses and other entities can tokenize any type of assets through Algorand Standard Assets (ASA) within minutes. Tokenizing through ASA means that you benefit from Algorand’s Layer-1 blockchain, andan unforkable network with high throughput and unbreakable security.
Here are some examples of real-world assets that have been tokenized with Algorand:
Algorand can also be used to tokenize art and memorabilia through non-fungible tokens (NFTs), which have been making headlines since the start of the year. Algorand’s NFT technology has been successfully used by SIAE (Società Italiana degli Autori ed Editori), the largest copyright collecting agency in Italy. The agency issued 4 million NFTs representing the rights of its more than 95,000 member authors. It took SIAE only several hours to tokenize the copyrights at the lowest cost possible. If the agency went for another major blockchain supporting NFTs, it would have done it in days.
Algorand’s Layer-1 is fast, secure, and transparent, which makes the best infrastructure to tokenize financial assets. As of today, Algorand processes over 1 million transactions per day, and the network supports over 4.5 million assets.
Thanks to its unique features, Algorand is poised to lead the tokenization trend.