Opinion: Asset Tokenization Holds the Key to Ownership’s Future
Disclaimer: The author’s views and opinions expressed in this article are solely their own and do not represent the views and opinions of the editorial team at crypto.news.
Have you ever considered the connection between tokenization and homeownership? Tokenization not only links these two concepts but also transforms our perception of ownership. The privilege of owning a home is increasingly becoming hereditary, with the gap between those with parental wealth and those without becoming more evident. In fact, one-third of first-time homebuyers in the UK receive financial assistance or complete funding from their parents for the down payment.
The United States is also facing a generational barrier when it comes to homeownership. Last year, the median age of American homebuyers rose to 53 from 45 in 2021. Homeownership is just one piece of the wealth puzzle. So, how can we make the concept of ownership more inclusive for future generations?
The tokenization of real-world assets (RWAs) will play a crucial role in conjunction with the establishment of a global digital asset trading, settlement, and asset servicing framework known as the “internet of value.” Let’s explore how asset tokenization can create a more diverse ownership landscape and examine the potential challenges that lie ahead.
Tokenizing real-world assets introduces a dynamic element to ownership by allowing ownership to be divided into smaller, more accessible units. This concept applies to all types of investable assets, including equities and bonds. Fractional ownership reduces traditional barriers to entry, enabling individuals, especially younger generations, to engage in smaller-scale investment diversification.
In the context of real estate, asset tokenization allows you to invest in and own a fraction of a house instead of the entire property. Furthermore, you can engage in this practice across multiple properties of different sizes simultaneously, achieving portfolio diversification.
Traditionally, valuable assets like real estate, rare artworks, and private equity were only accessible to high-net-worth individuals or institutions. Tokenization opens up these assets to a wider range of people. Tokenization also enhances liquidity for traditionally illiquid assets and introduces new avenues for financing, such as crowdfunding for real estate ventures or startups. This empowers emerging entrepreneurs and visionaries to explore alternative models for capital mobilization. It sounds seamless, but what are the challenges?
While the democratization of tokenized RWAs is possible, its widespread acceptance relies on factors such as technological accessibility, internet connectivity, and a fundamental understanding of blockchain. Additionally, user-friendly services need to be established to handle risks and shield individuals from the complexities of blockchain technology.
Although tokenization improves access to historically illiquid assets, there can still be a mismatch between market demand and supply. Buyers and sellers may not always align. Moreover, determining the value of tokenized RWAs, especially for unique or illiquid assets, can be a challenging task.
On the technological side, the fragmented nature of these assets can lead to challenges in interoperability and standardization during settlement. Regulatory inconsistencies across jurisdictions further complicate the process. Clear and consistent legal frameworks are necessary to ensure compliance with existing laws, protecting both investors and issuers, which is currently lacking.
Fortunately, market players are aware of these challenges and are taking proactive measures to address them. Initiatives like the one presented by SWIFT and Chainlink, along with several banks and financial market infrastructures, provide a platform for collaboration and offer valuable insights for tackling complex blockchain interoperability issues.
Developing common token standards and protocols across different blockchain platforms also helps solve interoperability and standardization challenges. Regulator-approved unique identifiers introduced by the International Organization for Standardization (ISO) and managed by the Digital Token Identifier Foundation (DTIF) facilitate seamless movement of tokenized assets between different ecosystems, increasing access to a wider audience and democratizing the process.
Financial market infrastructures (FMIs) are expected to play a critical role in bridging traditional and tokenized markets by providing neutral and fair access to liquidity locked on bank tokenization islands. As FMIs and banks integrate these assets into their offerings, they are incentivized to provide user-friendly options, such as wallet abstraction solutions, to less tech-savvy individual customers and corporates. User-friendly interfaces facilitate understanding and adoption of the technology, as not everyone wants to directly engage with blockchain and tokenized assets.
Tokenized RWAs will likely continue to grow as more assets, including commodities, infrastructure projects, and intellectual property, are tokenized. As institutional and retail investors become more comfortable with the concept, increased adoption will drive maturity in technology, regulations, and global market practices. This will lead to hybrid models that combine traditional financial instruments with tokenized assets, allowing a wider pool of investors to gradually transition into this new paradigm. Although this shift may take years to unfold, its impact on future generations will be revolutionary. The course has been set, and there’s no turning back.
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Alexandre Kech
Alexandre Kech is the head of digital securities at SIX Digital Exchange. With over 20 years of experience in the field, Alexandre is a prominent figure in banking and digital assets. He has worked for leading companies in the financial industry, including BNY Mellon, SWIFT, and Citi Ventures. As a pioneer in blockchain and digital currency-enabled products, he has been at the forefront of innovative initiatives in the field.
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