Unpacking the Benefits of Tokenisation

Unpacking the Benefits of Tokenisation

Tokenisation stands at the forefront of financial and technological evolution. With industry experts estimating the global tokenisation market to grow beyond $16 trillion by 2030 (Markets Media, 2022), the transformative potential of this technology in shaping the future of asset ownership and management is undeniable.

As the adoption of blockchain technology accelerates, tokenisation is positioned to redefine asset ownership and transfer. This paradigm shift promises to transform the trading and management landscape of assets.

So, what exactly is tokenisation, and why should we take note?

What is Tokenisation?

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To understand the benefits, we first need to grasp what tokenisation actually is. At its core, a token can symbolise a specific asset or utility. In the blockchain space, tokenisation refers to the conversion of an asset into a digital token suitable for blockchain applications.

Such tokenised assets can be divided into two categories: tangible assets, such as real estate, fine art and precious metals, and intangible ones, such as voting rights, intellectual property and or any ownership claims. Essentially, any item that has value, can be owned, and fits into a broader asset market can be tokenised.

Tokenisation however is not new, the financial sector has used it since the 70’s to safeguard sensitive data by transforming it into unique alphanumeric tokens. While this older method shares similarities with blockchain-based tokenisation, the latter’s focus extends beyond just data protection. Blockchain enables a versatile and secure tokenisation of assets, expanding digital token applications across numerous industries.

If you want to dive further into tokenisation, check out our article here.

What are the benefits Tokenisation?

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Benefit #1 — Increased Liquidity

Fractional ownership is redefining how assets are viewed and transacted in today’s investment landscape. By allowing high-value assets, such as prime real estate or esteemed art, to be divided into smaller shares, fractional ownership brings two pivotal advantages.

First, it democratises investment. Buyers can now acquire a piece of a traditionally expensive asset at a fraction of its total value. This approach opens doors for many who previously found such markets inaccessible.

Second, and crucially for sellers, it introduces enhanced liquidity. With assets divided into multiple shares, they become more marketable and easier to sell. Rather than waiting for a single buyer who can afford the entire asset, sellers can transact with multiple buyers interested in smaller shares. This not only speeds up the selling process but also often increases the overall demand, potentially driving up the asset’s valuation.

In essence, fractional ownership is more than an innovative investment strategy. It’s a bridge connecting wider audiences to previously exclusive markets and providing sellers with swifter, more flexible access to capital.

Benefit #2 — Increased Efficiency

Tokenisation brings unparalleled efficiency to asset management and transactions. By eliminating the need for intermediaries, such as banks, to validate transactions, tokenisation not only reduces transaction fees but also significantly expedites settlement times, presenting a more cost-effective solution for both businesses and individual investors.

The implementation of shared infrastructure among all participants and the automation of manual work, combined with reduced reconciliation/compliance tasks, further cut inefficiencies. Simple send/receive transaction settlements and clearances can now be automated, allowing transactions to be completed in seconds as opposed to the traditional hours or days.

These efficiencies create a more optimised market, facilitating smoother exchanges of assets and services. In essence, tokenisation streamlines transactions and lowers costs, making it a more economical and efficient alternative to traditional methods.

Benefit #3 — Improved transparency

Tokenisation, by virtue of blockchain technology, inherently improves transparency across asset transactions and ownership. All transactions conducted on the blockchain are recorded and accessible to its participants, which can be public or restricted to authorised individuals in private blockchains. This ensures that the history of activities performed over the asset, including the chain of ownership, is readily available for review, instilling trust in the provenance and origin of assets.

For investors, this level of transparency is invaluable. Tokenisation establishes clear ownership records by creating digital tokens representing asset ownership, securely stored on the blockchain. This results in accurate, secure, and transparent records that facilitate informed investment decisions.

However, it is also recognised that complete transparency might not be suitable for every scenario, such as in asset management or competitive environments. In such cases, privacy-enhancing technologies can be deployed to safeguard sensitive information, balancing transparency with confidentiality.

In essence, tokenisation offers a refined level of transparency, fostering trust and informed decision-making while providing the necessary tools to maintain privacy where needed.

Conclusion

In summary, tokenisation unlocks a host of benefits from increased liquidity and reduced costs to non-stop trading. While regulatory hurdles remain, the growth projections highlight the vast potential for this technology to disrupt ownership models.

For investors, tokenisation provides new opportunities to diversify into previously hard-to-access asset classes at lower cost. For asset holders, it offers a more efficient way to raise capital and unlock value from holdings. The bottom line is tokenisation looks set to open exciting new possibilities in finance and beyond.

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