Again and again, the term tokenization is used. Thereby, assets are getting digitally depicted about a blockchain. So this topic is clearly characterized by the digitalisation. But how exactly does a tokenization work? Which profits does it bring along? And what else is possible in the future?
Tokenization explained
The tokenization arranges that finance products like bonds or share of the companies (equities) will be dispensed in form of a blockchain token to people. Here it is about a digital process of securitisation. With the tokens, property situations can be depicted. Species of the tokenization which exist yet are bonds, participation rights and share of the companies (Equity).
With the application of the blockchains, some advantages are created, like e.g. an easy transfer. Also, no middleman is needed like the broker when it is dealt with stocks matters. One obtains the token directly from the editor and receives the dividends. This also makes the transfer faster. Moreover, the blockchain grants high safety because all transactions are registered transparently and unforgeable.
Basically, the tokenization is the next evolutional step of financial products. First, there were stocks represented by paper sheets. These are nearly died out today. On the next step, vendors who maintain your interests were needed. This assignment was inherited by brokers like e.g. Trade Republic. And now with the step of tokenization, such middleman is not needed anymore. Like in the first step, oneself is in possession of the interests. Though they are not in paper anymore, but entirely digitised.
Previous developments
Because of the tokenization, regimented finance products can be represented. Today, it is fast and easy possible to create a STO (Security Token Offering). This succeeds best whilst one refers to a platform which brings the legal framework. For example, former manager of Rockstar Games will tokenize a new game Battue they created already, with the help of the platform Intokia.
The lawmaker makes this process simple insofar as he patterns the way there as straightforward as possible. So one only has to issue specific documents and abide by the rules.
Future outlook
Prospective you can expect more adaptions in this area. As an example, the bank JPMorgan conducted a big tokenization in October last year. Thereby, interests of the BlackRock money market funds were converted into tokens. Their own blockchain technology “Onyx” in combination with the tokenized Collateral Network was used for this. The tokenization lasted only a few minutes. In the future, a faster and more efficient transaction can happen because of the conversion. Above, JPMorgan has created an own token named JPM Coin. This represents the Live-Blockchain-Application with which large customers can effect payments in USD or EUR. The daily transaction volume amounts to one billion USD.
More banks and big institutes are moving toward this are and prepare for performing tokenizations themselves. The market is in constant movement and won’t stop in this year. Rather it can reckon with positive changes in 2024. A respective infrastructure will be available in the future and the process tokenization wil be more common. Quite possible, that it even will be standard sometime.
The possibilities which can be created through such a change are the easy availability, simple trade as well as straightforward access. In contrast to IPOs (Initial Public Offering) STOs are significantly more favourable. Also centre stands and already funded start-ups then can have better chances for a faster cashflow. Besides, utilities can be connected with the property of a token. For example, a hotel which dispenses its interests can allow free entry to the spa for the persons with big interests.
Conclusion
The tokenization is the newest step of the evolution of financial products, crowdfunding and fundraising. These can be digitally depicted now and no middleman is needed anymore. In the future, there will be more species of tokens and new possibilities, for example by combining utility and security. More and more traditional players will include this process in their everyday business. And overall it will make transfers faster, easier and safer.
Author: Maximilian Schmidt is CEO of the CPI Technologies GmbH. The company is specialized in software development in the areas artificial intelligence, blockchain and digital product development. https://cpitech.io/de/
