Is 2021 The Year Of Tokenized Assets?

The following is a contributed article from a content partner of Benzinga

A tokenized future is upon us, allowing investors at any scale to participate in fractionalized financial opportunities. Tokenized assets will help provide greater liquidity, better price discovery, faster and cheaper transactions, more transparency, and global accessibility. It could disrupt several asset classes that make up the multi-trillion-dollar market for real-world assets, bringing them into the digital age and transferring that value into highly liquid marketplaces.

But how will tokenized assets progress in 2021? Which markets and organizations are at the forefront of that trend, and what does it mean for your existing stocks, real estate, commodities, and other investments?

Disrupting Asset Classes

Stock Markets

Security token offerings like Blockstack have already built on the concept of cryptocurrency Initial Coin Offerings (ICOs) to raise investment within regulated frameworks. Now, the tokenization of traditional securities is beginning.

Established cryptocurrency exchanges like Bittrex and FTX have begun offering 24/7 tokenized stock trading, allowing buying and selling of fractions of shares such as Tesla, Amazon, and Apple, bringing the convenience of digital asset trading to the traditional equity market.

Jonathan Squires, CEO of the digital asset platform Currency.com, also hinted at some exciting improvements in opening up markets over the next year. He commented: “We’ve recently added tokenized stocks from the Russian and Japanese markets, and we’re pushing ahead with plans for corporate bonds on-chain with some major local companies.”

This resulted from partnerships with Switzerland-based tokenization solutions provider Digital Assets AG and German financial services firm CM-Equity. They expect to add more tokenized stocks, pre-IPOs, and ETFs in 2021, with other exchanges likely to follow suit.

It is not just the crypto-native platforms seeking building out tokenized solutions. Nasdaq continues to develop a blockchain platform able to issue private securities, with former CEO Robert Greenfield calling for a fully tokenized stock market within five years.

Thor Chan, CEO of digital asset exchange AAX, responded to this in a recent Forkast News interview, commenting that: “I think in the US, or in some mature financial markets, like Hong Kong, the security token is actually something that they keep looking at. I foresee that those markets with good regulations will have a much faster development in the tokenization of stocks.”

Real Estate

Given its historical lack of liquidity and barriers to younger generations, tokenization will open up trade in the real estate market by offering split ownership. Tokyo-based investment bank MBK is one example of institutions experimenting in this area. The equity built up in property can be tokenized and traded. New generations can gain access to the market by starting with fractions of a property or individual room ownership.

Commodities

Further tokenization of commodity assets is likely to build on the efficiency of tokens such as PAX Gold. Smelting giant Nornickel is working with IBM’s Hyperledger to develop blockchain token representations of other rare metals. Projects like PowerLedger will also allow users to trade excess power generated by their solar panels in the form of tokenized energy.

Currencies

Tokenized currencies have gained the most traction following the success of stablecoins. With plans for Central Bank Digital Currencies (CBDCs) well underway, some digital fiat tokens could begin to emerge over the next year, disrupting the global forex market, especially on the Asian side. One country to keep an eye on is Vietnam. The state government recently started working with the up and coming blockchain project, Tomochain, on a collaboration with its Ministry of Education and Training (MOET) branch.

Artwork

In one of the most illiquid asset classes, tokenization will continue to break down barriers, with traditional artwork already becoming tokenized on the Ethereum network and Non-Fungible Tokens, which make a digital item unique, providing a new means to monetize art in 2021.

Regulatory Path To Tokenization

Regulatory clarity and cooperation across jurisdictions will, as always, be key to unlocking the full potential of tokenization. An acknowledgment from then-SEC Chairman Jay Clayton, for example, that all stocks could become tokenized one day and that the door is “wide open” if someone can show how to “tokenize in a way that adds efficiency" certainly helps.

Such clarity creates a roadmap to tokenize ownership of existing assets and transforms how initial offerings may take place, with the potential for tokenized IPOs. One such example is Sygnum, the digital asset bank regulated in Switzerland and Singapore that announced tokenization of its stock. It is exploring an IPO with a dual listing on the SIX Digital Exchange and the Singapore Digital Asset Exchange in a joint venture with financial services firm SBI.

With an expected Coinbase IPO in 2021, it could also capture interest from both the traditional and digital asset worlds by tokenizing the share offering to attract a new range of investors.

Conclusion

Crypto-native projects and traditional finance are both building out the infrastructure to support tokenization. 2021 could see the beginning of a more mainstream tokenized economy, however, with people from all over the world able to trade anything from fractional ownership in a sports star’s future earnings; to digital art, stocks, and real estate, transforming historically illiquid assets, decentralizing funding, removing gatekeepers, and opening up new global markets.

It could revolutionize our economy, hypothetically allowing you to save, trade, and make purchases using any tokenized asset, completely changing the way individuals invest and interact with money, and bridging the current disconnect between traditional asset market participation and the real economy.
As Deloitte summarized in its tokenization disruption report: “Only institutions that engage with the technology, plan for the future and adapt to the realities will thrive.”