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Asset Tokenization: Bridging the World of Crypto with the Physical World

Jan 26, 2024 4 min read

The traditional world seeks familiarity, only in such a case new technologies such as blockchain can benefit from mass adoption. Only if there is at least one familiar factor in place, new technologies can penetrate TradFi and the physical world.

Real-world assets can serve as such a familiar factor, and tokenization of real-world assets can become a bridge between blockchain and the physical world. Thanks to such features of blockchain as immutability and digital rights, any real-world asset can be tokenized, or converted into a non-fungible token (NFT) on a blockchain

What Real-World Assets Can Be Tokenized?

All real-world assets: real estate, artworks, music pieces, including financial assets such as loans, royalties, and contracts can be tokenized. Now, in the real of the coming Web3, owning a tokenized asset is not about owning a digital piece of land, a digital house, or any other in-game items, but about owning digital rights to a tangible asset that exists in the real world.

For example, if you buy a tokenized painting, your property rights are recorded on a blockchain. It means that you own not a digital copy of the painting but the painting itself becomes your property, and everybody can check your rights on a blockchain. You can manage the ownership on a blockchain while the asset itself remains completely tangible. This merged reality enables a seamless transfer of value and ownership across the physical and digital worlds.

How Tokenization Revolutionizes the Market

Tokenization can change the market by bringing investment to a different level.

Turning previously illiquid assets into liquid ones

Not all real-world assets are liquid, and such ones as real estate are highly illiquid. Tokens, on the contrary, can be traded on any blockchain-based platform. Thus, tokenizing real-world assets, including those that are highly illiquid makes them liquid, thus allowing to buy, sell, and exchange them rapidly and efficiently.

Fractionalization opens access to more investors and enables portfolio diversification

Tokenization allows to divide an asset into several parts, each part is represented by a token with a value that equals the asset part.

It means that high-value assets that were earlier accessible only to high-net-worth individuals become accessible to a wider circle of investors. It, in turn, allows for a higher diversification level of investment portfolios. Instead of investing in merely crypto assets, investors can also add real-world assets or their parts (fractions).

Tokenization for global accessibility

Blockchain is borderless, and thus tokenization potentially can enable investors from all around the world to invest in the assets of their preference. With the tightening regulation this benefit is being eliminated but still, assets tokenized on a blockchain are more accessible than traditional physical assets.

Top Platforms That Help with Asset Tokenization

Polymath

Polymath is a specialized platform dedicated to the issuance and management of security tokens. This platform provides a streamlined process for the creation and administration of security tokens, ensuring strict adherence to regulatory requirements.

Within the expansive Polymath ecosystem, various businesses contribute tailored tokenization solutions spanning advisory, legal counsel, KYC/AML compliance, marketing, custody, and escrow services, as well as tax-related expertise. Among the esteemed partners collaborating with Polymath are notable entities such as Genesis Block, DWF, Glyph, Wachsman PR, BitGo, and Cryptoworth.

Securitize

Securitize is a comprehensive platform that specializes in the management of digital securities, offering an array of services encompassing compliance, investor communication tools, and issuance services. The platform has gained recognition for its unwavering commitment to adhering to stringent regulatory standards.

By the year 2022, just three years after its inception, Securitize Markets secured its position among the top 10 US stock transfer agents. It serviced over 1.2 million investor accounts and catered to the needs of over 3,000 clients.

Securitize uses mainly the Ethereum blockchain, however, the service is blockchain agnostic, it seamlessly interacs with various blockchain technologies.

Ondo Short-term US Government Bond Fund (OUSG)

Ondo Finance emerges as a prominent financial technology company that specializes in a diverse array of investment products with a focus on tokenized real-world assets. Through its innovative approach, Ondo Finance facilitates investor access to traditional financial markets by leveraging blockchain technology.

The comprehensive suite of investment options offered by Ondo Finance encompasses tokenized exposure to various financial instruments, including US Treasuries, bonds, and other assets. This broad range of products is created to simplify the investor experience while utilizing the transformative potential of blockchain in the financial realm.

MakerDAO

MakerDAO, recognized as one of the pioneering and enduring decentralized finance (DeFi) protocols operating on the Ethereum blockchain, has demonstrated substantial progress in integrating real-world assets into its DeFi ecosystem.

This leading DeFi initiative has successfully attracted institutional investors who leverage its DAI stablecoin, effectively tokenizing Treasury bills (T-bills) for utilization within the expansive MakerDAO ecosystem.

The engagement of institutional investors in borrowing DAI stablecoin and tokenizing Treasury bills underscores MakerDAO's pivotal role in bridging traditional finance with the decentralized realm.

Conclusion

The future for the tokenization of real-world assets looks highly promising. The expanding range of assets that can be tokenized, the increase of regulatory adoption, improved transparency and liquidity, along with the evolving regulatory frameworks will further contribute to the tokenization development.