Disruption in Alternative Assets Through Tokenization

Understanding Tokenization

  • Security tokens — represent ownership or interest in an underlying asset
  • Utility tokens — provide access to specific rights and privileges to token holders
  • Exchange tokens — can be used as a mode of payment

Challenges of Alternative Investments

Tokenization addresses some of the inherent issues — for both investors and asset managers — of the alternative asset classes by:

  • Improving Liquidity — Traded tokens on secondary markets
  • Enabling Quicker, Cheaper Transactions — Lower complexity and higher operational efficiency reduce transaction and lifecycle costs
  • Enhanced Transparency — The token holder’s rights, legal responsibilities, and certificate of ownership can be encased within the tokens
  • Widening access — Tokens provide access for more investors to a previously unaffordable or insufficiently divisible asset class

Tokenization of alternative investments

Tokenization and HashCash

  • Legal services
  • Landing Page construction
  • White paper draft

This is followed by the actual tokenization which includes:

  1. Deal structuring — This is the comprising the most important part, where decision-makers must compile key aspects such as business objectives, share class, valuation and pricing, fee structure, capital commitment, regulations, and taxes. The result is then formulated into the project complete with determinant smart contracts.
  2. Digitalization — On the finalization of deal structuring, the underlying asset can be tokenized. The asset can be fragmented into as many tokens as possible, thereby reducing the value of each token. Blockchain technology is implemented as a distributed ledger, and tokens are then sold or issued to investors.

Benefits of tokenization

  • Greater access via fragmentation — An asset can be divided into any number of smaller parts, lowering the bar for entry of retail investors of any capacity.
  • Shorter settlement time — Tokenization enables a 24/7 trading facility in an exchange and real-time settlement unlike T+2 or T+3 settlements.
  • Flexibility — An asset can be modified into infinite share classes
  • Data transparency — Data may be stored on a blockchain
  • The accomplishment of transformational value through operational efficiency — Enabling drag-along actions, like corporate actions, that can be automated
  • Increased liquidity — Tokens could be easily traded in the secondary market, improving the overall liquidity
  • Moreover, there are no geographical barriers, or middlemen, and swift, hassle-free transactions.

Wrapping up

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Maria Garcia

Maria Garcia

Passionate about blogging on Cryptocurrency, Blockchain applications, Artificial Intelligence & IoT.