As cryptocurrency and digital tokens become viable financial assets, more retail investors want to learn about crypto and the tokenization of real-world assets like gold, real estate, and other commodities.
Experts predict the global tokenization market could grow to nearly US$5.6 billion by 2026 at a CAGR of 19%.
You may be wondering what’s driving the tokenization trend of crypto and real-world assets.
This article explains how we can add physical, real-world assets to the blockchain as digital tokens and what it means for retail investors. After that, we review five of the most exciting projects involving crypto, the tokenization of real-world assets, and how you can start trading crypto safely and securely.
What is Asset Tokenization? Crypto and Real-World Assets
Through a process known as tokenization, financial assets are turned into tradable digital tokens backed by cryptocurrency and secured by blockchain technology and immutable distributed ledgers.
The tokenization of physical assets has added another real-world use to blockchain technology. One can tokenize any real-world object, allowing it to become a fully tradable asset similar to a cryptocurrency. NFTs have led the tokenization charge by creating NFTs that correspond with a tangible object in the world.
For example, Funko released a line of Teenage Mutant Ninja Turtle collectibles that could only be obtained via NFTs. Collectors could then decide to keep the NFT or redeem it for a real-world Funko. Additionally, collectors from around the world can buy and sell specific Funko NFTs without having to ship the physical toy.
All Types of Real-World Assets can be Tokenized
- Commodities: Imagine having thousands of dollars in real gold, but you don’t have to store and protect it. One can safely store Gold and other valuable metals elsewhere and still provide the owner with usable value. you don’t have to physically trade gold, you can trade the token since it’s worth a specific amount of it.
- Real estate: Real estate: people can tokenize Deeds and other important documents can easily to provide an immutable record of ownership that lives on the blockchain. After that they can buy and sell ownerships with the same level of complexity as a Funkpop NFT (legal ownership and property transfer laws aside).
- Stock or equity: Do you want to own some of a business? You can tokenize the company stakes that you own. Decentralized Autonomous Organizations (DAOs) take this to the next level by providing those with ownership to actively vote on business initiatives.
- Video game assets: Play-to-earn gaming is exploding and that’s for a good reason. Gamers can now fully own their game assets. while, gamers are accustomed to putting countless hours into working towards a goal, such as a legendary item within the game. But their efforts disappear once they stop playing the game. Instead, tokenized game assets allow gamers to sell that legendary item they worked so hard to obtain.
- Collectibles: The aforementioned Funkpop example is being repeated throughout the world of collectibles. Also one can tokenize Anything that can be collectible for increased tradeability.
Benefits of Tokenizing Real-World Assets
Tokenizing real-world assets improves cryptocurrencies stability because a specific token’s value correlates to the asset that supports it. Simply put, it legitimizes cryptocurrencies by providing a baseline value since the underlying commodity has intrinsic value.
The benefits of tokenizing real-world assets are vast, including increased liquidity, faster transactions, reduced costs, and reinforced risk management. Let’s also consider there is roughly $256 trillion worth of real-world assets yet need tokenization on the blockchain, a sure sign of untapped market potential.
Whatever your opinion, the fact of the matter is asset tokenization alongside DeFi and crypto is paving the way for a new financial paradigm. Some are even deeming it the future of investing.
What Asset Tokenization Means for Retail Investors: Crypto and Real-World Assets
While you may think tokenization is a market sector only for the crypto community, the truth is it has distinct advantages for real-world asset classes as well. Here are three reasons retail investors should consider tokenizing real-world assets on the blockchain.
- Improved liquidity: Since Blockchain technology and distributed ledgers eliminate the middlemen involved in the transaction process, meaning asset transactions are processed immediately without a centralized party’s approval. This results in a secure yet instantaneous transaction process meaning real-world assets on the blockchain have unprecedented liquidity.
- Invest in a new asset class: Tokenization is a process that brings about a new class of asset ownership. By merging traditional finance with decentralized finance (DeFi), retail investors can independently explore a rapidly-expanding financial sector by investing in everything from established commodities to niche products.
- Access to untapped global markets: One of the most significant benefits of blockchain technology is its ubiquity. Anyone can trade blockchain-backed assets regardless of their location and without an intermediary. In other words, asset tokenization will help you connect with a surging global marketplace.
So, what’s the takeaway?
Asset tokenization is blurring the lines between traditional finance and decentralized finance. It’s an innovation that offers retail investors a chance to tokenize real-world assets via the blockchain, tapping into an emerging market ripe with opportunities for massive gains.
Like any other type of investment activity, you must conduct in-depth research and pay attention to market activity as much as possible. An excellent place to start your due diligence is with this list of five of the most exciting projects focused on tokenizing real-world assets.
5 Asset Tokenization Projects to Watch in 2022: Crypto and Real-World Assets
Synthetix is a derivatives liquidity protocol that focuses on creating synthetic assets. They offer unique decentralized derivatives and experience with physical assets on the blockchain. If you’re an investor looking for the best price execution, strong liquidity, and little slippage and fills, the Synthetix debt pool is an excellent place to explore.
2. PAX Gold
PAX Gold is a digital token backed by actual, physical gold. You get one fine troy ounce and a 400 oz London Good Delivery gold bar in exchange for each token. PAXG investors own the physical gold stored by Paxos Trust Company, one of Brink’s secured vaults.
Centrifuge is on a mission to connect real-world assets to the world of DeFi to increase liquidity. Borrowers can use Centrifuge to finance their real-world investments without financial intermediaries. Investors receive a return in stablecoins plus CFG liquidity rewards. The idea is liquidity is open to everyone.
Harbor is a digital platform working on automating manual processes plaguing the world of alternative assets. By improving the alternative asset experience, Harbor makes methods like investment subscriptions, investor management, and secondary transfers easier to manage privately.
Securitize is an electronic regulatory compliant platform for issuing (and trading) alternative assets and digital securities. Investors utilize Securitize to gain access to alternative investing, diversify portfolios, avoid costly fees, and engage in peer-to-peer trading.
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