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Reduce DLT solution build and deployment times, so that you can offer investors new asset classes and next-generation T+0 settlement
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Asset tokenization is the process of representing real-world assets – anything from financial instruments, commodities, to real estate – as secure digital tokens via distributed ledger technology (DLT).
This innovation is altering how the investment space functions, making processes more immediate, more accurate, and more inclusive. Asset tokenization represents a significant opportunity for financial institutions, allowing them to tap into new efficiencies and offer novel and unique investment opportunities.
In this article we explore:
Asset tokenization involves building a distributed ledger-based solution that converts the ownership rights or value of specific assets into a digitized form. Tokens are housed and traded across the distributed ledger, meaning they are cryptographically secured, traceable, and benefit from smart contract functionality.
Examples of assets that can and are being tokenized:
Tokenization also allows the ownership rights or value of assets to be divided across numerous tokens, bringing liquidity to historically indivisible asset classes. Examples of inherently illiquid assets where this could offer value include houses, cars, antiques, and certain debt instruments.
Asset Tokenization delivers the most immediate value in capital markets. While already a thoroughly digitized space, capital markets benefit from the faster processing and settlement times made possible with distributed ledger technology. New forms of automation also become available, further streamlining market processes.
Tokenization provides other benefits including greater transparency, flexibility, and access for new investors thanks to broader reach. Enhanced levels of liquidity mean better tradability and price discovery in the market.
Fractional ownership is one of the major advantages of tokenization. By dividing traditionally illiquid assets across a multitude of tokens, ownership can be traded in bite-sized portions, making it easier to trade and more accessible to lower net-worth investors. This is particularly relevant for certain stocks, bonds, and properties.
Tokenization of assets means that we can bypass market intermediaries and middlemen. These agents and companies are involved in the traditional asset management process, adding costs and friction at the same time as facilitating transactions. By removing them from the trade cycle, transaction costs can be brought down and processing times drastically shortened, allowing for a more streamlined, cost-efficient transfer of value.
Blockchain, the underlying combination of technologies that make tokenization possible, is known for its immutability: for our purposes, this can be understood to be the characteristic of having extremely robust information security.
Additionally, on a blockchain, metadata about transactions is recorded as a feature of the architecture. This can make tracking and providing transparency about tokenized assets virtually an automatic process. Thanks to the cryptographic protection of data on a blockchain, investors and market infrastructures have guarantees about the authenticity and accuracy of assets and transactions.
Another powerful feature of tokenized assets is the potential use of blockchain-based smart contracts. These self-executing programs allow humans to be eliminated from many market processes, bringing greater simplicity and efficiency to existing infrastructure, and making entirely new mechanisms possible. The result is faster, more streamlined transaction and settlement processes, reduced human error, and the potential for 24/7 trading.
Debt products such as bonds are assets that provide regular dividend payments to the holder. Unfortunately, the manual processes and the slow settlement involved in payouts mean that it can take a relatively long time to receive dividends. Intermediaries add to the inefficiency by charging significant fees for their role in the process. Tokenization of debt instruments provides an avenue for more advanced automation that can greatly reduce both processing times and transaction costs. This allows dividends to be received in a timely, low-cost manner.
There is a growing trend among traditional funds and asset managers to move towards asset tokenization. The main benefits of tokenizing investment funds are increased liquidity and accessibility, greater transparency, better operational efficiencies, and automation. This offers retail and institutional investors a streamlined and accessible method of investing in diversified portfolios, enhancing efficiency in the investment process.
By tokenizing properties, organizations can create liquidity in real estate markets. Fractionalized ownership opportunities mean a diversified offering for potential investors who can buy property in tokens that represent portions of a real estate asset or fund.
Commodities like gold, oil, gas, and agricultural products are more efficiently tracked and traded as integrated blockchain-based tokens. This brings fractionalization, greater transparency, and trust to markets typically organized through the buying and selling of futures (price guarantees on batches of commodities). Not only does tokenization create a more dynamic commodities market, it allows crypto-investment to be pinned to real-world assets, making it more stable and delivering more dependable price discovery.
Tokenizing intellectual property, such as patents or copyrights, allows inventors to monetize their work and sell fractional ownership rights. This creates a new form of tradable asset while offering an avenue to a more efficient DLT-based marketplace for intellectual property rights trading. It also lends itself naturally to the commoditization of fractional ownership in works of art and rare collections.
Tokenizing carbon credits supports environmental initiatives and carbon offsetting by facilitating efficient trading of emission reduction assets, appealing to businesses, organizations, and individuals engaged in carbon trading and sustainability efforts. This can bring an end to uncertainty, inaccuracy, and double counting of credits. The immutable quality of blockchain-based tokens renders carbon tracking data incontestable and systems can be more easily integrated with remote sensing.
The immutable recording and tracking that becomes possible once assets are tokenized result in a more dependable supply chain. Businesses and consumers interested in verifying the authenticity, quality, and ethical sourcing of products can index shipment details via metadata stored on a blockchain platform. Tokenization also opens the door to more advanced automation, improving efficiency in supply chain management.
Tokenizing loyalty programs boosts customer engagement and loyalty by offering flexible and transferable rewards, benefiting businesses and their customers. Points tokens can be programmed with specific functionality to serve only specific groups of customers or to only function in combination — and conditions can be placed on issuance, redemption, and exchange options. This makes it possible to offer more creative experiences, while streamlining loyalty program management.
Tokenizing assets traditionally managed and traded across complex market infrastructure presents challenges from a governance perspective. On-chain and off-chain considerations, such as issuing rights, access and permissions required to redeem or destroy blockchain-based tokens, must be balanced against an appropriately robust consensus mechanism for validating transactions on the blockchain.
Integrating blockchain infrastructure with legacy systems is another major challenge requiring deep knowledge of traditional and emerging technologies and architectures. Knowing which types of interfaces are appropriate for particular systems is not altogether straightforward. And legacy systems must be aligned with the desirable T+0 trade settlement time made possible by tokenization, in order not to throttle efficiency gains.
Simply coordinating participants of the blockchain network to ensure shared definitions of operational standards, design of tokens and methods of data exchange, demands careful planning, made possible only with strong technical understanding.
Catalyst Blockchain Manager is an end-to-end blockchain solutions operating system enabling enterprises to overcome the technical barriers to asset tokenization. Catalyst simplifies the management of blockchain solutions, facilitating production-grade blockchain implementations and rapid DLT experimentation cycles.
“Banking and financial markets are areas where blockchain has significant near-term potential. Tokenization, facilitated by Catalyst Blockchain Manager, is a game changer in terms of speed, ease, and the flexibility afforded to development teams.”
— Ievgen Zubkov, Solution Architect, IntellectEU
Quickly and easily upgrade enterprise legacy infrastructure with asset tokenization solutions. Drastically reduce DLT solution build and deployment times, so that you can offer investors new asset classes and next-generation T+0 settlement.
DELIVER NEXT-GENERATION ASSET TOKENIZATION
Speak to one of our specialists about deploying and managing an asset tokenization use case with Catalyst Blockchain Manager.
Asset tokenization is the process of representing real-world assets – anything from financial instruments, commodities, to real estate – as secure digital tokens via distributed ledger technology (DLT).
This innovation is altering how the investment space functions, making processes more immediate, more accurate, and more inclusive. Asset tokenization represents a significant opportunity for financial institutions, allowing them to tap into new efficiencies and offer novel and unique investment opportunities.
In this article we explore:
Asset tokenization involves building a distributed ledger-based solution that converts the ownership rights or value of specific assets into a digitized form. Tokens are housed and traded across the distributed ledger, meaning they are cryptographically secured, traceable, and benefit from smart contract functionality.
Examples of assets that can and are being tokenized:
Tokenization also allows the ownership rights or value of assets to be divided across numerous tokens, bringing liquidity to historically indivisible asset classes. Examples of inherently illiquid assets where this could offer value include houses, cars, antiques, and certain debt instruments.
Asset Tokenization delivers the most immediate value in capital markets. While already a thoroughly digitized space, capital markets benefit from the faster processing and settlement times made possible with distributed ledger technology. New forms of automation also become available, further streamlining market processes.
Tokenization provides other benefits including greater transparency, flexibility, and access for new investors thanks to broader reach. Enhanced levels of liquidity mean better tradability and price discovery in the market.
Fractional ownership is one of the major advantages of tokenization. By dividing traditionally illiquid assets across a multitude of tokens, ownership can be traded in bite-sized portions, making it easier to trade and more accessible to lower net-worth investors. This is particularly relevant for certain stocks, bonds, and properties.
Tokenization of assets means that we can bypass market intermediaries and middlemen. These agents and companies are involved in the traditional asset management process, adding costs and friction at the same time as facilitating transactions. By removing them from the trade cycle, transaction costs can be brought down and processing times drastically shortened, allowing for a more streamlined, cost-efficient transfer of value.
Blockchain, the underlying combination of technologies that make tokenization possible, is known for its immutability: for our purposes, this can be understood to be the characteristic of having extremely robust information security.
Additionally, on a blockchain, metadata about transactions is recorded as a feature of the architecture. This can make tracking and providing transparency about tokenized assets virtually an automatic process. Thanks to the cryptographic protection of data on a blockchain, investors and market infrastructures have guarantees about the authenticity and accuracy of assets and transactions.
Another powerful feature of tokenized assets is the potential use of blockchain-based smart contracts. These self-executing programs allow humans to be eliminated from many market processes, bringing greater simplicity and efficiency to existing infrastructure, and making entirely new mechanisms possible. The result is faster, more streamlined transaction and settlement processes, reduced human error, and the potential for 24/7 trading.
Debt products such as bonds are assets that provide regular dividend payments to the holder. Unfortunately, the manual processes and the slow settlement involved in payouts mean that it can take a relatively long time to receive dividends. Intermediaries add to the inefficiency by charging significant fees for their role in the process. Tokenization of debt instruments provides an avenue for more advanced automation that can greatly reduce both processing times and transaction costs. This allows dividends to be received in a timely, low-cost manner.
There is a growing trend among traditional funds and asset managers to move towards asset tokenization. The main benefits of tokenizing investment funds are increased liquidity and accessibility, greater transparency, better operational efficiencies, and automation. This offers retail and institutional investors a streamlined and accessible method of investing in diversified portfolios, enhancing efficiency in the investment process.
By tokenizing properties, organizations can create liquidity in real estate markets. Fractionalized ownership opportunities mean a diversified offering for potential investors who can buy property in tokens that represent portions of a real estate asset or fund.
Commodities like gold, oil, gas, and agricultural products are more efficiently tracked and traded as integrated blockchain-based tokens. This brings fractionalization, greater transparency, and trust to markets typically organized through the buying and selling of futures (price guarantees on batches of commodities). Not only does tokenization create a more dynamic commodities market, it allows crypto-investment to be pinned to real-world assets, making it more stable and delivering more dependable price discovery.
Tokenizing intellectual property, such as patents or copyrights, allows inventors to monetize their work and sell fractional ownership rights. This creates a new form of tradable asset while offering an avenue to a more efficient DLT-based marketplace for intellectual property rights trading. It also lends itself naturally to the commoditization of fractional ownership in works of art and rare collections.
Tokenizing carbon credits supports environmental initiatives and carbon offsetting by facilitating efficient trading of emission reduction assets, appealing to businesses, organizations, and individuals engaged in carbon trading and sustainability efforts. This can bring an end to uncertainty, inaccuracy, and double counting of credits. The immutable quality of blockchain-based tokens renders carbon tracking data incontestable and systems can be more easily integrated with remote sensing.
The immutable recording and tracking that becomes possible once assets are tokenized result in a more dependable supply chain. Businesses and consumers interested in verifying the authenticity, quality, and ethical sourcing of products can index shipment details via metadata stored on a blockchain platform. Tokenization also opens the door to more advanced automation, improving efficiency in supply chain management.
Tokenizing loyalty programs boosts customer engagement and loyalty by offering flexible and transferable rewards, benefiting businesses and their customers. Points tokens can be programmed with specific functionality to serve only specific groups of customers or to only function in combination — and conditions can be placed on issuance, redemption, and exchange options. This makes it possible to offer more creative experiences, while streamlining loyalty program management.
Tokenizing assets traditionally managed and traded across complex market infrastructure presents challenges from a governance perspective. On-chain and off-chain considerations, such as issuing rights, access and permissions required to redeem or destroy blockchain-based tokens, must be balanced against an appropriately robust consensus mechanism for validating transactions on the blockchain.
Integrating blockchain infrastructure with legacy systems is another major challenge requiring deep knowledge of traditional and emerging technologies and architectures. Knowing which types of interfaces are appropriate for particular systems is not altogether straightforward. And legacy systems must be aligned with the desirable T+0 trade settlement time made possible by tokenization, in order not to throttle efficiency gains.
Simply coordinating participants of the blockchain network to ensure shared definitions of operational standards, design of tokens and methods of data exchange, demands careful planning, made possible only with strong technical understanding.
Catalyst Blockchain Manager is an end-to-end blockchain solutions operating system enabling enterprises to overcome the technical barriers to asset tokenization. Catalyst simplifies the management of blockchain solutions, facilitating production-grade blockchain implementations and rapid DLT experimentation cycles.
“Banking and financial markets are areas where blockchain has significant near-term potential. Tokenization, facilitated by Catalyst Blockchain Manager, is a game changer in terms of speed, ease, and the flexibility afforded to development teams.”
— Ievgen Zubkov, Solution Architect, IntellectEU
Quickly and easily upgrade enterprise legacy infrastructure with asset tokenization solutions. Drastically reduce DLT solution build and deployment times, so that you can offer investors new asset classes and next-generation T+0 settlement.
DELIVER NEXT-GENERATION ASSET TOKENIZATION
Speak to one of our specialists about deploying and managing an asset tokenization use case with Catalyst Blockchain Manager.
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