Asset tokenization is a quickly emerging topic in the financial industry. Asset tokenization is the process of moving traditional non-digital securities to a digital form using blockchain technology. “Tokenized securities” are digital investment products with the characteristics and functions of securities. Digital Securities (or “Securities Tokens”) are blockchain-based digital hashes which represent the units of account and form in which tokenized securities are issued to investors.
Asset tokenization enables investment in the form of digital tokens backed by real world securities or assets. Leveraging the secure, immutable qualities of blockchain technology, tokenization facilitates digital fractional ownership with secure transaction records and swift settlement processes.
How Big is the Market?
According to the World Economic Forum Asset tokenization is projected to grow to $15 trillion by 2025.
From an issuer’s perspective, fractionalization allows them to reach a wider investor base with a larger pool of investment capital, while streamlined processes and automation reduce operational costs in the lifecycle of the tokenized security. Settlement facilitated by blockchain technology makes the transfers of ownership rights in the asset faster and more secure, with an immutable record of ownership always tracked on blockchain.
Traditional intermediaries such as valuers, auditors and brokers will benefit from increased accuracy and availability of data, with sensitive information protected by encryption against unauthorized parties. The automation of processes eliminates repetitive work and minimizes manual error, freeing time, and economic resources to focus on value-add aspects of deal structuring for tokenized real estate assets.
For investors who are priced out of the high, front-loaded capital requirements of investment, tokenized assets enable accessible investment opportunities for the first time. For larger investors seeking portfolio diversification, tokenization facilitates customized portfolio rebalancing with near-instant settlement, so investors can sell or buy tokens to adjust their exposure to a particular asset, and flexibly manage a wider range of assets in their portfolio, including traditional assets such as real estate and exotic assets such as sports teams.
Although the adoption of tokenized financial assets and instruments remains nascent, regulators within many global jurisdictions are rapidly accepting and fostering the continued development of this latest advancement in technology-based financial innovation. The next step that will be critical to the broader adoption and rapid advancement of tokenization in real estate investment is institutional involvement and the development of various business frameworks.