Larry Fink, the CEO of BlackRock was in the news recently for his statement that Bitcoin is ‘digital gold’. His firm has now applied for permission to start a Bitcoin ETF. Quite a turnaround for a gentleman who once said that Bitcoin was an index for money laundering. This turnaround started a few months ago when Fink said that the “next generation for markets is tokenisation”.
When one of the most powerful men in world finance says this, everyone sits up and takes notice. This statement, in a nutshell, captures why crypto evangelists are so enthusiastic about this space. In this article, we will do a deep dive into the world of tokenisation and why it is poised to revolutionise the financial landscape.
Asset tokenisation is the process of representing the ownership rights of real-world assets on a blockchain. This transformative technology has the potential to bring trillions of dollars of real-world value onto blockchain networks, offering unprecedented benefits such as permissionless liquidity, open access, on-chain transparency, and reduced transactional friction compared to traditional assets.
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The biggest USP of tokenisation is that it brings increased transparency to financial markets. Transactions involving tokenised assets are recorded on a public ledger, providing visibility and traceability throughout the ownership history of the tokens. This enhanced transparency can foster trust among market participants, as it ensures the authenticity and provenance of assets. Additionally, tokenisation holds the potential to reduce frictional costs and streamline financial intermediation, benefiting both investors and the overall economy.
The list of benefits of asset tokenisation goes on. It can increase the liquidity of traditionally illiquid assets, provide greater accessibility to otherwise cloistered investment opportunities, enhance transparency regarding ownership and ownership history, and reduce administrative costs associated with trading these assets. Tokenisation allows assets that previously could not access the DeFi ecosystem a path towards doing so, unlocking a whole new realm of potential through asset-backed composability.
The tokenisation of assets is not limited to financial or fungible assets like company shares or quantities of gold. It can also include real estate, and even alternative assets like art or wine as digital tokens. It can extend to anything possessing monetary value, potentially encompassing nearly all of human economic activity. This vast market size, estimated to be worth well over $100 trillion annually, underscores the game-changing potential of asset tokenisation.
Major enterprises like Boston Consulting Group, ADDX, BlackRock, Deloitte, BNY Mellon, and EY are all investing heavily in this space as it has the capacity to disrupt multiple industries. Microsoft and Vanguard have also announced or gone live with projects tokenising industrial assets and securities, respectively, indicating that asset tokenisation is already achieving real-world enterprise adoption.
The transformational potential of tokenisation transcends beyond the conventional financial realm, seeping into the fabric of diverse sectors such as real estate, art, and even sports, each of which is now witnessing its democratsing effect.
Consider the impact of tokenisation in real estate: Traditional investment in this sector demands significant capital, resulting in the exclusion of potential investors with modest resources. However, companies like RealT have harnessed tokenisation to counteract this issue, dividing properties into affordable units or tokens. This innovation allows for partial ownership of properties, democratising real estate investment and making it accessible to all, regardless of their financial prowess.
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Similarly, the art and collectibles sector, once reserved for the affluent, is now seeing broader participation thanks to tokenisation. Platforms like Maecenas are leveraging this technology to tokenise artworks, enabling multiple investors to own shares in valuable pieces. This is a breakthrough in democratising ownership and investment in the high-value art industry.
Even the world of sports is not immune to the transformative impact of tokenisation. Socios.com, a blockchain-based fan engagement platform, has partnered with globally renowned football clubs like FC Barcelona, PSG and Juventus to issue fan tokens. Token holders can participate in club decisions, receive exclusive rewards, and contribute to decision-making processes, making fan engagement more interactive and inclusive.
Tokenisation has the potential to be a game-changer, transforming the way we invest, engage, and participate in various sectors. It can effectively decentralise power and wealth, breaking down barriers and opening new horizons for global economic growth.
Markets are volatile and sentiment capricious but one thing is clear: the underpinning blockchain technology, and the asset tokenisation it enables, will play an integral role in the financial landscape of the future. They provide a clear pathway towards increased efficiency, transparency, and accessibility of assets, setting the stage for the next generation of market operations. As we step into this new era, the tokenisation of assets may well emerge as the cornerstone of a modern, inclusive, and democratised global economy.
(The author is the Vice President of crypto investment platform WazirX)
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