Because you clicked on this article, you probably know what Tokenization is. If not, then put simply, Tokenization is the process of digitally representing a real or physical asset on the blockchain as tokens. The process involves converting an asset with value into a digital token representing a share of ownership in the underlying asset. This process is significant for several reasons. It enhances liquidity, allowing traditionally illiquid assets like real estate or art for investors to trade efficiently. It also enables fractional ownership, making it possible for smaller investors to partake in investments previously out of reach, such as high-value properties or venture capital funds.
Blockchain technology's inherent transparency and security ensure each transaction is reliably recorded, reducing fraud risks and providing a clear asset ownership history. Additionally, tokenization paves the way for global market access, connecting assets to a broader investor base and diverse markets.
Tokenization has applications in various domains. Art and collectibles can be tokenized to allow fractional ownership, offering a way for artists and collectors to monetize their physical assets while democratizing investments. Intellectual properties, such as patents, are another area where tokenization can manage and trade ownership rights more effectively. Commodities like gold and oil, and even private equity or venture capital investments, are also being transformed through tokenization, allowing for more flexible and accessible trading and investment options.
Landvault’s Matera protocol is leading tokenization in the metaverse. Matera allows individuals to tokenize 3D environments or assets into 100,000 asset tokens, enabling ownership and trade through the blockchain. This mechanism helps creators bring their content on-chain, verify them, and monetize them directly while consumers can invest and earn rewards for their contributions.
So, now you know what Tokenization is, let’s dive deeper into why it’s a game changer.
Here’s how tokenization broadens investment opportunities:
Lower entry barriers: Tokenization helps break expensive assets into smaller, more affordable units, lowering individual investors' financial barriers to entry. These tokens make assets like real estate, art, or venture capital funds that were once the domain of the wealthy or institutional investors accessible to a broader audience. For instance, with just $100, an investor can own a share of a million-dollar property in a premium location and enjoy the benefits of its increasing value.
Global accessibility: Tokenization platforms operate on the blockchain, removing geographical barriers and allowing people worldwide to invest in assets globally.
Liquidity: Tokenized assets offer enhanced liquidity compared to traditional investments because they can be easily divided into smaller, more affordable shares. This divisibility allows a broader range of investors to buy and sell portions of the asset, facilitating quicker and more frequent transactions. This liquidity makes it more attractive for individuals needing to convert their investments back into cash.
Diversification: Tokenization opens up a $400 billion opportunity to access alternative investments, as reported by Bain & Company. Investors can diversify their portfolios by acquiring tokens in various assets, including venture capital, real estate, commodities, cryptocurrencies, and collectibles, spreading risk and potentially increasing returns.
Examples of real-life platforms and projects enabling the democratization of investments through tokenization:
RealT: RealT is a platform for fractional investment in tokenized real estate assets. It allows investors globally to buy into the US real estate market through fractional, tokenized ownership powered by blockchain technology.
Maecenas: Maecenas is an art investment platform that democratizes access to fine art by allowing token purchasers to own a percentage of the artwork. They target first-time art buyers who are looking for exposure to the market. In 2018, the platform sold a 31.5% ownership stake in Andy Warhol’s painting “14 Small Electric Chairs” worth $1.7 million.
HSBC Explores Tokenized Gold: In 2023, HSBC bank launched tokenized ownership for the physical gold in its London vault. Each token would represent 0.001 troy ounces of gold and can be traded between the bank and institutional investors through distributed ledger technology (DLT) via HSBC’s Evolve platform.
Blockchain efficiency and transparency
Blockchain technology is the foundation underpinning the tokenization of assets, enhancing efficiency and transparency in various industries. Its decentralized nature, immutability, and transparency are key features that make it the ideal technology for tokenization.
How blockchain enhances efficiency and transparency:
Decentralization: Blockchain operates on a decentralized network, eliminating the need for a central authority. This decentralization allows data to spread across network nodes, reducing the risk of fraud and manipulation.
Immutability: Once a transaction is recorded on a blockchain, it cannot be altered or deleted. This immutability ensures the integrity of transaction records, making it a trustworthy technology for recording ownership and transfers of tokenized assets.
Transparency: All transactions on a blockchain are visible to all participants, allowing them to track provenance and cryptographically verify transaction history. This visibility is crucial for trust and accountability in transactions.
Smart contracts: Blockchain enables the use of smart contracts, which are self-executing contracts with the terms of the agreement directly written into code. They automate and streamline processes, reducing the need for intermediaries and lowering transaction costs.
Reduced intermediaries: Blockchain technology executes transactions without intermediaries like banks or payment processors. It streamlines processes by minimizing the need for intermediaries, resulting in faster and more direct transactions.
Examples of blockchain in tokenized ecosystems:
Real estate: Blockchain technology enables investments in tokenized real estate properties. It eliminates intermediaries, makes the process more cost-effective for the buyer and seller, and reduces fraudulent transactions. In 2019, Inveniam Capital Partners used the Ethereum blockchain to tokenize a building worth $66 million in Florida, USA, to help investors directly acquire a stake in the property.
Financial services: In the financial sector, blockchain is used to tokenize stocks, bonds, and other financial instruments. Companies like tZERO are working on blockchain-based platforms for trading tokenized securities, which enhances transparency and reduces settlement times.
Here are some ways tokenization facilitates global investment opportunities:
Accessibility to diverse assets: Public blockchains naturally have a global scope as they pose no external obstacles to people and investors. Tokenized transactions, operating on a blockchain, eliminate the need for a bank or broker account, making them accessible to anyone, anywhere. This process also increases the liquidity of traditionally illiquid assets like real estate and art, making them more accessible to global investors.
Reduced transaction costs and complexity: Tokenization simplifies investing in foreign assets. Traditional cross-border transactions involve high fees, complex legal processes, and multiple intermediaries. Tokenization reduces these costs and complexities by leveraging blockchain technology and the public internet. An article by Nasdaq wrote that tokenization could slash the cost of issuing bonds by a whopping 80%. According to a Roland Berger report, with the widespread adoption of tokenization, the total cost savings could soar to approximately 4.6 billion Euros (equivalent to $4.83 billion at the current exchange rate) by 2030.
Faster transactions: Through tokenization, transaction times can be significantly shortened, enabling round-the-clock trading. Smart contracts automatically execute transactions based on set criteria and can streamline the process from the typical T+2 settlement time to almost instant completion. This acceleration minimizes the risk of counterparty defaults during transactions and lessens the likelihood of disruptions in trading.
Simple currency exchange and compliance: Tokenization simplifies currency exchanges, often pairing assets with cryptocurrencies or stablecoins for easy, cost-effective conversions. Furthermore, it can ensure compliance with international regulations such as AML(Anti-Money Laundering) and KYC (Know Your Customer) through transparent and programmable smart contracts.
A real-world example of asset tokenization allowing for global investments is the case of Andy Warhol's artwork. A company named Freeport offered fractionalized shares of Andy Warhol paintings, creating 1,000 tokens that represent shares of the work, making them accessible for anyone to purchase. As of the writing of the source, for just under $200, one could own 1/1000th of Warhol’s "Rebel Without a Cause." The advantages of this method include lowering costs by removing intermediaries, allowing efficient 24/7 trading, lowering the barrier to entry, creating more liquidity, and global access for traders.
Traditional illiquid assets are typically out of reach for the average investor due to their high value and indivisibility. Real-world assets have limited fractionalization capabilities, whereby selling 1/20th fraction of a property or a percentage of a company share is not realistically possible.
Tokenization introduces the concept of fractional ownership that allows these high-value assets to be divided into smaller, more affordable units in the form of digital tokens. For example, a painting worth millions could be tokenized into thousands of tokens, each representing a small percentage of ownership. With tokenization, investors who could not afford the entire painting can now purchase a fraction, democratizing access to investment in high-value, illiquid assets.
In this way, tokenization makes previously inaccessible assets available to a broader range of investors and adds liquidity to markets traditionally characterized by their illiquid nature. This shift could impact how investments are made and managed, opening up new opportunities for diversification and portfolio management.
The tokenization of the St. Regis Aspen Resort, which Elevated Returns acquired, serves as a pioneering case study in the real estate sector, showcasing the transformative potential of blockchain technology in enhancing asset liquidity and accessibility. In a groundbreaking move, the 179-room property owner created a real estate investment trust (REIT) called ‘Aspen Digital’ that was tokenized and sold to accredited investors as Aspen Digital Tokens. This tokenization process involved breaking down the property's equity into smaller shares on the blockchain, akin to fractional ownership in a public company.
The digital token was made available directly through Templum Markets, an alternative trading system for secondary trading of digital securities. This listing marked a significant shift in the property's investment approach, as it opened up the asset to a broader range of investors by lowering the minimum investment requirement and providing a secondary market for trading these security tokens. The resort's digital investor base expanded, indicating the wide-reaching impact of this innovative approach.
Tokenization promises a future where investments are more accessible, markets are more efficient, and asset ownership is more transparent and inclusive. As this technology continues to evolve and gain acceptance, it will undoubtedly open up new horizons for innovation in asset management and investment, making it an exciting field to watch and participate in.
Are you looking to tokenize your digital creations in the metaverse? We can help you build, scale, and monetize your 3D assets on-chain with Matera. Get in touch with us!
لاند فولت هي أكبر منشئ في الميتافيرس مع أكثر من 100 مليون قدم مربع من العقارات الافتراضية، وأكثر من 120 مبدعًا بدوام كامل، وقرابة 300 مشروع منجز. لقد ساعدنا العلامات التجارية على البناء والنمو في بيئات الألعاب منذ عام 2017 وفي الميتافيرس منذ عام 2021.
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