As digital transformation accelerates, tokenized real assets are moving to at-scale development. Scroll down to get more insights on this evolving tech trend.
USD 16 trillion. This is how much the tokenized asset market could reach by 2030, a recent report by Boston Consulting Group (BCG) and ADDX says. This means that asset tokenization as a business opportunity will grow 50 times compared to the figures of 2022.
Asset tokenization estimates
Source: BCG, ADDX
Asset tokenization refers to converting rights to tangible (real estate, сommodities, luxury items) or intangible assets (intellectual property, stocks and bonds, licenses and royalties) into a digital token on a blockchain.
To get a clearer picture of how real-world asset tokenization works, imagine you want to buy some artwork, say, Andy Warhol’s Queen Elizabeth. Frankly, for many, a price of $850 thousand is heavy. But suppose you could purchase “shares” of this print similar to how you can buy shares of a publicly traded company?
This, then, is the idea behind asset tokenization — to make real-world assets more accessible and divisible for everyone.
Steps To Tokenize Assets
Tokenizing real-world assets involves several key steps:
- Choose An Asset To Tokenize
Assess your business requirements, audience needs, and market trends to identify suitable assets for tokenization.
2. Select The Right Token Type
Depending on the type of asset, these could be security tokens, governance tokens, utility tokens, or NFTs.
3. Identify Compliance Requirements
Completing this step will require analyzing legal regulations specific to the asset, considering global, country, and industry contexts.
4. Design A Tokenomics Model
You need to create a tokenomics model that determines the demand and supply of tokens, outlines the intrinsic value and utility of a token within its ecosystem, and describes the rights associated with assets.
5. Select A Tokenization Platform
When choosing a platform, prioritize scalability, security, and interoperability to facilitate smooth tokenization and effective asset management.
6. Develop Smart Contracts
Now issuers need to decide on the total number of tokens they want to distribute and choose the distribution method. Then engineers start building smart contracts. Smart contracts are code written into a blockchain that is automatically executed when predefined conditions are met.
7. Issue Tokens
Companies can issue tokens on their own blockchain network or launch them on third-party platforms like Ethereum.
The Benefits Of Tokenization
Keeping ownership of the real-world items on the chain offers several benefits including:
Increased Liquidity
By dividing high-value assets into smaller, more affordable shares, tokenization makes it easier to buy and sell traditionally illiquid assets like real estate.
Better Transaction Speed And Cost Reduction
Tokenizing assets automates processes that traditionally involve intermediaries, resulting in faster, smoother, and potentially cheaper investment procedures.
Transparency
In private markets, blockchain-based tokenization can enhance transparency regarding the ownership of investments and their transactional history. This, in turn, can mitigate ambiguity and reduce the risks associated with investment management.
Wider Access
Tokenization enables broader access to assets typically restricted to institutional clients or a niche group of investors. Additionally, individuals and businesses in developing countries with limited access to financial services can still potentially invest in real-world assets to benefit from their appreciation in value over time.
Wider Appeal
The idea behind tokenization can be particularly appealing to younger, tech-savvy investors compared to players who prefer dealing with conventional platforms. Thus, established corporates and traditional players may adopt the strategy of tokenization to reach a larger audience.
Composability
Financial industry participants can combine tokens representing different financial assets such as stocks, bonds, or currencies to form more diversified and flexible portfolios.
Main Difficulties Bringing Real-World Assets On-Chain
While the infrastructure supporting tokenization continues to develop and mature, many traditional players remain skeptical. So, what are the primary factors holding back tokenization? These are:
Lack Of An Established Legal And Regulatory Framework
While in certain European jurisdictions, such as:
- Switzerland,
- the UK,
- France,
- Germany,
Luxembourg, as well as in Asian jurisdictions like the Philippines and Singapore there is a relatively clear regulatory framework for tokenization companies, the legal and regulatory landscape across many other regions is still fragmented.
Cyber Risks
Tokenization brings risks associated with the theft and loss of tokens as a result of cyberattacks on blockchain networks and digital wallets. Despite most regulatory regimes now requiring investor Know Your Customer (KYC) procedures, public chains still face persistent phishing, routing, and other sophisticated attacks.
Therefore, to use all the advantages tokenization has and avoid being a victim of hackers and fraudsters, robust regulatory compliance measures should be implemented.
Technical Complexity
When it comes to implementing a tokenization platform businesses inevitably face new added layers and costs — just the opposite of what the new technology set out to solve.
Sophisticated blockchain infrastructure must interoperate with the existing technology, which is not as easy as many would like, and requires time and a deep understanding of the matter. This often becomes a barrier to entry for many potential market participants.
Nonetheless, despite the current hurdles, the benefits of tokenizations are significant which means we can expect widespread adoption in the coming years, although in a more phased manner.
What Sectors Benefit The Most From Real Assets Tokenization?
While tokenization is expected to contribute positively to almost every sector of our modern society, many experts agree that these industries ultimately will benefit the most from the technology.
Financial Services Industry
The main benefits of tokenized financial assets — equitable access, composability, and enhanced transparency — empower financial and partner institutions to capture operational efficiencies, boost liquidity, and explore new revenue opportunities through innovative use cases.
Some players that have already started to see success in tokenization initiatives include big-name financial institutions like the World Bank, Goldman Sachs, BlackRock, J.P.Morgan, Broadridge Financial Solutions, WisdomTree, and Franklin Templeton.
A striking success story is that of Figure Technologies. A leading non-bank HELOC lender in America has facilitated the issuance of over $10 billion in loans involving blockchains, supported by Web 3 natives like Centrifuge and Maple Finance.
Real Estate
Due to the immutable nature of blockchain, the tokenization of real estate has massive potential to address problems that have plagued the real estate industry for years — low liquidity, high market barriers to entry, and lack of transparency and efficiency.
Smart contracts replace costly intermediaries like real estate agents, mortgage brokers, lowers, and bankers involved in traditional real estate processes. Smart contracts execute token sales automatically when specified criteria are met, offering speed, cost-effectiveness, and reliability compared to human intermediaries.
One notable example of successful real estate tokenization is the AnnA Villa in Paris. A luxury property located in a western suburb of the city was valued at €6.5 million and became the first European property to be sold entirely through a blockchain transaction.
Some other famous cases include the $135M Swiss property deal, the tokenization of a $30M Manhattan real estate property, and the Elevated Returns case, where the St. Regis Aspen Resort project successfully raised $18 million via a security token offering.
Art
The art market is a high-risk industry that suffers from forgery, fraud, and theft. Despite the initial skepticism, by now, many industry players have fully grasped that the immutable records with ownership history, independent appraisal comments, certifications and other information related to artworks can be real solutions to the pain points of the sector.
We can see a growing number of artwork owners and traditional galleries, including giants like Sotheby’s, Christie’s, and Phillips, partnering with blockchain technology companies.
In November 2018, Christie’s achieved a record-breaking sale of nearly $318 million for the Barney A. Ebsworth Collection, which was also the most valuable art auction ever recorded on a blockchain.
The above-mentioned Warhol use case, which is real, is also a great example. Freeport, a fine art-focused platform, has listed a four-piece collection of tokenized iconic Warhols for sale, creating 1,000 ERC tokens that represent shares of the prints that anyone can buy.
Looking For A Reliable Asset Tokenization Service Provider? Set Your Sights On Elinext
Founded in 1997, Elinext has extensive expertise in blockchain and crypto tech development and has been a technical partner in multiple asset tokenization projects for S&P 500 companies, SMEs, and startups across the globe.
Some of our successful blockchain-based solutions such as the Ethereum App for E-Commerce, Blockchain Solution for a Metals Trading Business, and Web Application for ICO Investments and Management are the best proof that you will work with a team of professionals with real-world experience delivering end-to-end blockchain services.
Elinxet’s experts know firsthand that security is paramount in the crypto space. Therefore, in our asset tokenization projects, we adopt a security-first mindset using reliable quality management and data security management systems backed by ISO 9001 and ISO 27001 certificates.
Start your asset tokenization journey today. Contact our blockchain experts to clarify how your business can benefit from tokenization and find out the ways Elinext can help.
