Why is asset tokenization gaining popularity and how has it impacted financial inclusion?
Tokenizable assets will be worth $2 trillion by 2030. What is asset tokenization, and why is it becoming a key player in reshaping the financial world? This page explores the growing popularity of asset tokenization and how it’s driving financial inclusion by democratising access to previously inaccessible markets.
What is asset tokenization?
Asset tokenization refers to the process of converting ownership rights or claims to a real-world asset, such as real estate, stocks, art, or commodities, into a digital token on a blockchain. Each token represents a fraction of the asset, making it more accessible for investors. By breaking down assets into smaller units, tokenization allows investors to buy, sell, or trade these tokens in a manner similar to cryptocurrencies.
Selection of the asset
The first step is to select an asset to be tokenized, either tangible or intangible.
Creation of tokens
The asset is divided into tokens on a blockchain, representing ownership units.
Smart contracts
Self-executing contracts manage ownership rights and transaction rules securely.
Trading and ownership
Investors trade tokens on platforms, unlocking liquidity in illiquid markets.
By 2027, investors are projected to allocate 7% to 9% of their entire portfolios to tokenized assets. This growing interest is prompting major financial institutions to invest heavily in the space, developing innovative tokenization platforms and products to meet the rising demand. As asset tokenization continues to evolve, it offers transformative potential for traditional markets by unlocking liquidity, democratising access to investments, and ensuring secure transactions through blockchain technology.
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Tokenization is rapidly gaining popularity due to its ability to simplify the ownership and trading of traditionally illiquid assets. It enables the fractionalisation of real-world assets like real estate, art, stocks, and bonds, making them more accessible to a broader range of investors. In fact, 56 out of 80 organisations now have their own tokenized asset marketplaces to support this growing trend.
Institutional investors are increasingly recognising the potential of tokenized assets. A recent survey shows:
17% of investors are already investing in tokenized assets.
25% plan to invest soon in tokenized and emerging assets.
35% are keen to learn more about this emerging asset class.
55% plan to allocate funds to tokenized assets within the two years.
As blockchain technology and decentralised finance (DeFi) continue to evolve, tokenization offers a transformative solution for enhancing liquidity, accessibility, and efficiency in asset markets. The support from institutional investors further underscores its potential to reshape traditional finance.
The rise of blockchain technology and DeFi is driving asset tokenization by providing a secure, transparent environment while eliminating intermediaries to reduce costs. Tokenization simplifies the complex process of trading high-value assets by converting ownership into easily transferable digital tokens. It also increases liquidity by breaking assets like real estate and art into smaller, tradable units, allowing investors to buy and sell fractions. Moreover, smart contracts automate transactions, cutting costs and enhancing efficiency for both issuers and investors.
How does asset tokenization promote financial inclusion?
Asset tokenization enhances financial inclusion by reducing entry barriers through fractional ownership, enabling investors to acquire small shares of traditionally high-value assets such as real estate, stocks, and art. This development creates opportunities for individuals with limited financial resources to engage in markets that were previously out of reach.
The impact of tokenization is especially significant in underserved communities and emerging markets, where access to conventional banking and financial services may be restricted. By digitising assets, tokenization allows individuals without comprehensive banking systems to invest and trade using merely a smartphone and an internet connection.
Institutional investors are also acknowledging the cost advantages associated with tokenization, with 57% anticipating lower fees for tokenized assets compared to those issued through traditional means. This decrease in costs has the potential to further democratise access to investment opportunities.
What is the impact of tokenization on the future of finance?
Tokenization is poised to have a transformative impact on the future of finance. By digitising real-world assets and enabling fractional ownership, tokenization makes investments more accessible and tradable, reshaping financial markets.
One key trend is the shift toward decentralised finance (DeFi), where blockchain-based platforms facilitate financial transactions without traditional intermediaries. This decentralisation reduces costs, speeds up transactions, and democratises access to financial services globally.
Another long-term effect is improved global liquidity. By breaking assets into smaller, tradable units, tokenization makes previously illiquid markets like real estate and fine art more liquid. This increased liquidity fosters greater market participation and broadens investment opportunities worldwide.
Finally, tokenization reduces reliance on traditional financial intermediaries such as banks and brokers. Smart contracts automate many financial processes, streamlining operations and cutting out middlemen. As tokenization continues to evolve, it will drive efficiency, transparency, and inclusivity in financial systems, shaping the future of global finance.
FAQs
By breaking assets into smaller, more tradable digital tokens, tokenization makes it easier to buy and sell fractional ownership of assets, increasing market liquidity. This allows investors to trade more frequently and access opportunities that may have previously required large capital.
Blockchain technology provides the secure, transparent, and immutable infrastructure for recording token ownership and transfers. It ensures that transactions are transparent and verifiable, reducing the need for intermediaries.
Tokenized assets rely on blockchain technology, which uses cryptographic methods to secure transactions and ownership records. While blockchain itself is considered secure, investors should be aware of potential risks related to specific platforms, including smart contract vulnerabilities or regulatory uncertainties.
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NayaOne is at the forefront of the financial revolution, offering innovative digital asset solutions that redefine how we approach asset management and investment. By leveraging cutting-edge technology and insights, NayaOne empowers institutions to navigate the complexities of digital assets with ease.
Our solutions enable seamless integration into existing systems, enhance operational efficiency, and promote greater financial inclusivity. As the demand for digital assets continues to grow, partnering with NayaOne positions your organisation to capitalise on these opportunities, driving future growth and innovation in the rapidly evolving financial landscape. Let’s embrace the future of finance together!