Asset Tokenization and Disruption of the Financial Sector
It is no doubt that investing in assets is about to be disrupted. Asset tokenization is real and early adopters could be the safe lot in the near future. Tokenization is cutting across many industries and the financial sector will be the one hard hit.
Tokenization of assets simply means issuing of tokens, preferably Security Tokens to represent a tradable asset in the market place. These security tokens are greeted through a Security Token Offering (STO) process. This means the token can be used as a company share, land ownership or investment fund.
Asset tokenization adds fairness and efficiency in the financial industry. It offers a better value proposition whilst cutting down middlemen. However, a disruption will mean lass business for financial institutions and better return to tokenized economy adopters.
Why the Financial Sector should be worried about Asset Tokenization
One this is very clear, asset tokenization illiquid assets will add more liquidity in the market. Investors will have the freedom to trade their tokens in the secondary market thus access a wider trader pool. The larger the trader base, the better for value addition purposes.
An illiquid asset like a piece of art will benefit from the transparency that comes with the blockchain technology, a vehicle that tokenization is riding on. What’s more; the process is poised to lower the minimum investment levels.
Faster and Cheaper Transaction Costs
Tokenized economy transactions are smart contract enabled and are fast and seamless. These are partly automated and this reduces the number of third parties who tend to slow down the process especially in the traditional banking systems.
Once processes are automated, the transaction fees are lowered. Manual transactions are expensive since there is an aspect of labor involved. Tokenization ensures that this labor cost, which is transferred to the user, does not exist making the transaction process very minimal.
Tokenization Increases Uptake
Tokenization is a surefire way of making investing in asset accessible to the masses. Both the banked and unbanked are accommodated in the economy. However, some assets and services have been the preserve of the rich but with tokenization, there is no discrimination. The poor can own a piece of an asset and build their portfolio from there.
Tokenization educes the minimum investment and more people are able to get financing to start investing. Tokens are highly divisible and this opens up space for small scale investors. What’s more; the marketplace is open 24/7 for business.
Transparency in the Tokenized Economy
Tokenized economy networks are immutable and this makes it more transparent and locks out fraud. Token holders are automatically given rights and legally binding responsibilities. Records are immutable and cannot be altered unless some conditions are met.
It is clear that tokenization is creating a new financial vehicle driven by democracy. Already, tokenization has become a reality with startups providing tokenized economy services. However, it might take a while before the new economy hype takes root and disrupts the financial sector.