Breaking the barriers to access with technology could quadruple asset trading volumes without exposing players to extra risks.<\/p>\n
Imagine this:<\/p>\n
You begin your morning by checking your investment portfolio. Your stocks are doing fine (given the market conditions). But the value of your Jackson Pollock painting just went up by 20% (after a recent Sotheby\u2019s sale). Your real estate holdings are also doing exceptionally well, as the average market prices for condos recently went up.<\/p>\n
You decide to schedule a quick commodities order for corn (since the prices are down) and eye up purchasing a piece of land that recently went up for sale. It might be a good long-term investment, but you want to sit on the idea a bit longer.<\/p>\n
This may sound like the typical day of an ultra-high-net-worth (UHNW) individual or an institutional investor.<\/p>\n
But not for too long. As asset tokenization enters the mainstream, retail investors could soon be able to afford a diverse portfolio of physical and digital assets, and capital market players could be able to capture more profits.<\/p>\n
Asset tokenization is the process of creating a digital representation (token) of a physical or digital asset. For ages, we\u2019ve been using tokens to pay for transport or play arcade games. You give your dollar and get a token of equivalent value.<\/p>\n
The difference is that asset tokenization can now happen on a larger scale using more advanced technologies, namely the blockchain \u2014 a cryptographically protected, decentralized, immutable ledger with complete traceability.<\/p>\n
Blockchains power cryptocurrencies \u2014 tokens that network participants receive as a reward for keeping the ledger active. These tokens aren\u2019t pegged to a fiat currency or any specific asset class. Their value is fully demand-driven.<\/p>\n
Blockchains also power central bank digital currencies (CBDCs) \u2014 virtual tokens issued by central banks to represent electronic money. CBDCs are pegged to a country\u2019s fiat currency. Some 81 central banks<\/a> are exploring this option, since tokenization can reduce operational costs, speed up settlements, and increase liquidity.<\/p>\n Lastly, blockchains can power securities trading by transforming exchanged monetary assets into fungible or non-fungible tokens, representing liquid and illiquid assets of different value. Then they can distribute these tokens, representing complete or fractional ownership, to anyone interested. The possibility of fractional ownership is what\u2019s particularly exciting for capital markets.<\/p>\n\n\t\t\t\t