Tokenization has the power to revolutionize the financial landscape‒intrinsically changing how investments are managed, used and monetized. The process of tokenization facilitates the creation of a multitude of new financial products, allowing every person and organization in the world to diversify their portfolio of investments on a global scale, regardless of income or size.
Let’s look at an example scenario that highlights the power of tokenization. A middle-class woman named Ms. Ganbold in Ulaanbaatar, Mongolia, makes the average income in the city, which is approximately $400 USD1 per month, and she would like to invest in Manhattan real estate, where prices nearly doubled in the 2010s.2
With traditional financial products, this would be extremely challenging considering the usual initial capital investment, if not a near impossibility. However, with tokenization, fractionalization—the division of an asset class into portions that are smaller than the whole3—opens the door of opportunity for Ms. Ganbold.
Tokenization of assets involves the process of digitally representing real, physical assets on distributed ledgers, or issuing traditional asset classes in tokenised form.4 Within the context of blockchain technology, tokenization is the process of converting something of value into a digital token that’s usable on a blockchain application and a token represents a share of ownership in the underlying asset. This process can work for tangible assets like gold, real estate, debt, bonds, and art, or certain forms of intangible assets such as ownership rights or content licensing.5 What is even more exciting is that tokenization allows for transforming ownerships such that traditionally indivisible assets can be fractionalized into token forms.6
Despite all the challenges, several tokenization projects have been launching globally in different industries, advancing the wider ecosystem, such as:
Holders of the tokens will be entitled to a percentage of the sale value of any player to the athlete's forming club.22 These examples illustrate how tokenization could help financially support athletes throughout their career journeys.
While tokenization offers a myriad of possibilities, there is still much work to be done in terms of consistent global regulation and development of the production grade solutions necessary to widen adoption. As investment in tokenization technologies continues to increase and the benefits of new assets becomes more evident, financial institutions should begin thinking about what infrastructure is needed to support tokenization, e.g., onboarding, management and integration with legacy systems, in order to be part of finance of the future.