In this blog post we’ll look at tokenization and why it matters – exploring its advantages, how it works in practice, and what lies ahead for tokenization.

Henry Chong, CEO of Fusang, projected that by 2030, one in every four publicly listed securities worldwide could be tokenized.

Chong’s statement highlights why it’s important to understand tokenization and get to grips with this new technology.

What is tokenization?

Tokenization simplifies investing by digitizing real assets like art or property. It converts these assets into digital tokens that are stored on a blockchain. Each token represents a share of ownership in the original asset.

Imagine that you want to invest in real estate. Normally, this might require a large up front investment, but with tokenization the building is split up into many digital tokens.

Each token represents a small part of the building’s worth, so you could buy some tokens and own a bit of the building. 

These tokens are traded on a blockchain, which makes it easier to buy and sell them compared to other alternative assets.

Andy Warhol’s art can show us a real life example of tokenization.

The company Freeport made it possible for people to buy small parts of Andy Warhol paintings by splitting them into 1,000 tokens.

Each token represents a share of the artwork, which means anyone can buy a piece of the painting. At one point, you could buy 1/1000th of Warhol’s “Rebel Without a Cause” for about $200.

Tokenization unlocks new investment opportunities by breaking down barriers to entry. It allows investors to buy and sell alternative assets more easily, leading to greater liquidity. This democratizes investing, offering greater accessibility and inclusivity.

To understand more about the specifics of how Tokenization works, click here.

Why should I care about tokenization?

1. Tokenization breaks down barriers

Fractional ownership through tokenization provides accredited investors and wealth managers with access to expensive assets that might typically be out of reach. For example, a luxury hotel worth multiple millions.

Through tokenization, the hotel could be split into digital tokens, allowing investors to buy a share of the hotel without needing millions of dollars.

This means you can use tokenization to enhance your portfolio with expensive, traditionally very exclusive assets.

1. Tokenization enhances liquidity

Traditional alternative assets often lack liquidity, like venture capital investments where funds can be tied up for five to ten years. However, tokenization can solve this problem. 

Because tokenization allows investors to trade tokens on blockchain platforms rather than conventional investment platforms, more people can buy and sell those tokens. 

This means that tokenization offers liquidity without sacrificing ownership. So even exclusive assets like rare artwork can be more easily bought or sold.

1. Tokenization uses Blockchain to increase transparency and security

Smart contracts are a feature of blockchain technology. They’re self-executing agreements written into code, which automate processes. This cuts out the middlemen, which can reduce costs. As a result, transactions can be faster and less complicated.

Tokenization can also ensure adherence to international regulations like AML and KYC through transparent and programmable smart contracts. 

This means that the clauses of a smart contract can have the rules of regulatory bodies coded into them, which makes adhering to different, potentially complicated regulations simpler.  

How does tokenization work in the real world?

As Tokenization is becoming more popular, more specialized platforms and marketplaces are appearing. These are digital spaces that facilitate the tokenization and trading of assets.

They provide the necessary infrastructure for issuing, buying, and selling tokens, ensuring transparency and security in transactions.

A good example of this comes from HSBC, which introduced tokenized gold for its clients in 2023.

Each token represents 0.001 troy ounces of gold and can be traded between the bank and institutional investors through distributed ledger technology (DLT) through HSBC’s Evolve platform.

Another example of a platform specializing in tokenization is RealT, which enables fractional investment in tokenized real estate assets.

RealT lets global investors participate in the US real estate market by offering tokenized ownership – all powered by blockchain technology.

What’s next for tokenization?

As tokenization becomes increasingly popular, addressing potential challenges, such as  regulatory considerations, will be key.

More than this, tokenization alters the dynamics of asset ownership and trading in a big way. This means that investors, companies and regulators will need to change the ways we think about alternative investments.

What can I do now?

Bain & Company reports that tokenization presents a $400 billion opportunity to access alternative investments, which means that staying updated on this new technology can be important for your portfolio.

If you want to learn more, you can click here to get more information. Or explore our other resources – like our interactive quizzes.