While not new to the blockchain world, the tokenization of real-world assets is now attracting industry attention. Fundamentally, tokenization is the process of converting rights – or a unit of asset ownership – into a digital token on a blockchain. Tokenization can be applied to regulated financial instruments such as equities and bonds, tangible assets such as real estate, precious metals, and even to Tokenization of Copyright to works of authorship (e.g., music) intellectual property. The benefits of tokenization are particularly apparent for assets not currently traded electronically, such as works of art or exotic cars, as well as those needing increased transparency in payment and data flows to improve their liquidity and tradability.
The tokenization of physical assets brings a range of benefits to market participants:
Leading financial institutions understand the opportunity that tokenization of financial assets represents. When it comes to turning legacy asset classes, such as corporate securities, into vibrant digital markets, we are witnessing several initiatives, notably by incumbent U.S. and European exchanges that are all developing tokenization offerings. From the origination of trading assets to Corporate Trust, the value chain is evolving.
We are still early on the journey towards the tokenization of assets, but it certainly has the potential to dramatically change the dynamic for investors and owners of numerous asset classes.