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Writer's pictureEward SHEN

FinTech Trends, Exploring the World of Asset Tokenization and Top Platforms for 2023


Welcome to the latest edition of our newsletter, focusing on Asset Tokenization. Following our previous newsletter on this topic, we have received numerous inquiries and engage in stimulating discussions regarding interesting ideas for tokenizing assets, ranging from whiskey to Litigation Finance, and beyond. In this edition, we will provide you with an update on the feedback received from our readers and provide an overview of the leading Asset Tokenization platforms.


Over the past few years, there has been a growing trend in the financial industry towards digitization and blockchain technology, which has paved the way for the emergence of Asset Tokenization platforms. These platforms allow the conversion of traditional assets, such as real estate, artwork, and commodities, into digital tokens that can be traded on a decentralized network. The tokenization of traditional assets has the potential to revolutionize the way we think about investing, as it provides greater accessibility and liquidity to previously illiquid assets.


In this newsletter, we will first explain the concept of Asset Tokenization and what kind of assets are suitable for Asset Tokenization. Then we will explore the benefits of Asset Tokenization from two perspectives: asset owner and investors. Finally, we will introduce the top 10 Asset Tokenization platforms that asset owners and investors can utilize in 2023.


This newsletter is also available on LinkedIn.


A Primer of Asset Tokenization

Asset Tokenization refers to the process of converting the ownership rights of an asset into a digital token on a blockchain network. These digital tokens can then be bought, sold, traded, and transferred like any other digital assets. Tokenization makes it possible to fractionalize the ownership of large assets, allowing investors to own a smaller share of the asset than they would otherwise be able to afford.


There is a broad range of assets that can be tokenized on the Asset Tokenization platforms, spanning from conventional assets such as venture capital funds, bonds, commodities, and real estate properties, to unique and exotic ones such as sport teams, racehorses, artwork, and jewelry. This extended spectrum of assets that can be tokenized brings more possibilities to investing for investors.



The Benefits of Asset Tokenization

Asset Tokenization has many benefits for both the asset owner and also investors.


Benefits from an asset owner’s perspective:

1. Increased liquidity:Commercial real estate is historically an illiquid asset class and difficult to trade. Now, with the help of tokenization, for example, instead of selling an entire property for $500,000,000, Asset Tokenization allows asset owners to tokenize their property and sell it as 500,000 tokens, each worth $1,000, or 0.0002% of the total property. Tokenization makes this property a more liquid asset, and owners can quickly liquidate a portion of the asset when they need cash or money.

2. Fair prices: Asset Tokenization enhances asset liquidity and enables fractional ownership, thereby attracting a wider range of potential investors, promoting transparency, and facilitating fair pricing. This approach eliminates illiquidity discounts when selling assets that lack an established market price. Additionally, selling smaller ownership fractions empowers owners to set fair market prices.

3. Reduced management costs: Decentralized tokenization platforms will automate many parts of the asset selling process, thereby saving time and costs associated with the traditional asset selling process involving lawyers and government.


Benefits from an investor’s perspective:

1. Increased liquidity: Investors can now invest smaller amount of money in a property through Asset Tokenization. Investors can diversify their portfolio as well.

2. Shorter lock-up periods: Given that Asset Tokenization makes investments more liquid, investors can now sell their investment (tokens) more easily and faster in the market with shorter lock-up period.

3. Transparent and secure process: The records of ownership in tokenized assets are unchangeable. The details of ownership including the Decentralized Identifiers (“DIDs”) are stored on blockchains. By using a private-public key pair, buyers create a digital signature that verifies their identity, ensuring it is indeed them. As a result, investors are presented with a trustworthy, secure, and transparent investment opportunity.


Because of these benefits for both parties in the investing process, Asset Tokenization has gained popularity and is currently revolutionizing the financial world.


Asset Tokenization Mechanisms

Here is a detailed visualization of an Asset Tokenization platform. Once an asset is taken to the Asset Tokenization platform, it will be digitized by creating a digital representation, usually in the form of a smart contract on a blockchain. This smart contract contains details such as ownership, value, and the number of tokens that will represent the asset. The mechanism of smart contracts are explained in one of our previous newsletter. Another important aspect in an Asset Tokenization platform is the different token standards offered on different platforms. Token Standards refer to the technical specifications that define how tokens are created, issued, and traded on a blockchain network. Token Standards provide the foundation for the accurate representation of assets and their characteristics on the blockchain. Thus, it is important to choose the right token standard with an Asset Tokenization platform.



Leading Asset Tokenization Platforms


Here is the comparison table of the Top 10 Asset Tokenization Platforms In 2023.



Summary


Asset Tokenization stands at the forefront of a transformative era in the financial industry, unlocking new possibilities and revolutionizing the way we invest. By digitizing assets and leveraging blockchain technology, investors gain access to previously illiquid markets, fractional ownership, and increased liquidity. The diverse range of assets that can be tokenized, spanning from traditional investments to unique and exotic opportunities, broadens the universe of potential assets and asset classes for investors seeking to diversify their portfolios.


Authors: Yiwen Chen and Edward Shen


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