The Complete Guide for Asset Tokenization on Blockchain

Photo by Shubham Dhage on Unsplash — Shubham Dhage on Unsplash

Finance, real estate, healthcare, and several other sectors use asset tokenization to their benefit.

In fact, the international asset tokenization market was worth a whopping USD 2.3 billion in 2021.

But what is asset tokenization, and how with blockchain it can offer a great deal to your business? Let's find out.

Asset Tokenization on Blockchain

Asset tokenization is a concept developed for times when one has some money to spare for investments but not enough to make a very significant one.

For instance, you wish to put aside around $1000 monthly to invest in real estate. Even if it's a significant amount, it's simply peanuts when you're buying physical assets like property.

Besides, there's no means to buy only a few square meters of real estate, as it's generally all or nothing.

But what if there is a real estate owner who needs $1000 urgently, and the only asset he has is the property itself. Even if the amount he needs is much smaller than the price of his property, he'll have to sell it off entirely to arrange for it.

Here's where asset tokenization comes into the picture, catering to your and the real estate owners' needs.

Asset tokenization can break down the total value of the property into tokens, which are only percentage shares of the underlying asset.

Out of this, he can sell off even $1000 worth of property shares on a Blockchain platform that supports smart contracts. This way, both the investor and the seller get what they want.

Top 3 Benefits of asset tokenization on blockchain

Let's see how asset tokenization on blockchain benefits your business.

Benefit #1: It promotes asset liquidity

It is one of the most apparent benefits of asset tokenization. Physical assets are generally illiquid, which means it is difficult to buy or sell them due to rigid rules of engagement.

But on a blockchain-backed platform, authorized investors meet the authentic sellers and get to invest in only percentage shares of the otherwise rigid physical asset.

Being conducted on a public ledger, the investment in tokenized assets is valid, legal, and transparent in all ways.

Benefit #2: It eliminates the mediators

Dealing with intermediates reduces profit margins drastically in asset transfer.

But conducting asset tokenization on blockchain removes the part of an intermediary.

Besides, since every transaction detail is in the public domain, the direct transaction between an investor and a seller is via highly transparent mechanisms.

Benefit #3: It offers higher accessibility to prime assets

Only through asset tokenization on blockchain can a rightful owner fragment the ownership of the asset into tokens. These tokens are of the minimum possible value, as deemed fit by the owner.

On the other side, the asset becomes accessible even for small investors by fragmenting the ownership in this way.

Besides, tokenization on blockchain removes the minimum investment period and other rigid investment rules.

Industries utilizing asset tokenization on blockchain

Let's see how the real estate and finance sectors exploit asset tokenization on blockchain.

Industry #1: Real estate

Asset Tokenization provides a cost-effective method to invest in real estate.

Primarily, it removes the dependence on intermediaries, cutting down the price automatically. It even provides a safe and transparent platform for the investors and the sellers to interact. As a result, it streamlines real estate investments to a great extent.

Industry #2: Finance

Asset tokenization is an integral component of finance domains like:

product structuring,
payment settlement,
margin lending, and
investment banking.

It authorizes managers to convert and store assets into digital crypto-currencies.

Also, tokenization makes way for secure and hassle-free investment by lowering the load on POS machines and other related systems for financial record keeping.