Asset-backed tokens, or security tokens, enhance the prospective initial raise for fund operators, and other entities that issue securities. Moreover, it is advantageous for crypto fund managers to develop cryptographic analogs of conventional assets to enhance the liquidity of underlying assets.
Liquidity can be described as the ease and speed with which assets are sold or purchased at market price. Typically, bonds and stocks are assets with increased liquidity, in comparison to assets such as vehicles, real estate, art, jewelry, and collectibles, which don’t have access to increased trading volumes, trade opportunities on exchanges and liquidity.
Summarization Of Asset-backed Tokens
Tokens that are backed by external assets can be compared to gold-backed representative currencies, as many conventional fiat currencies of today were previously following the “gold standard.”
As the scenario becomes more complicated, we evaluate tokens that are connected to assets which are “non-fungible,” for instance, real estate. The real estate market is mostly illiquid, and riddled with various inefficiencies, for example, middlemen who obtain a portion of an investment for taking on counterparty risk.
The most innovative uses for asset-backed tokens are emergent tokenomic models, a few examples are:
- Derivatives
- Private equity
- Real estate
- Collectibles
Presently, non-fungible assets are valued at trillions; they are kept in vaults globally as hedges against inflation rates.
Here are a few asset-backed token use cases:
- Issuing corporate debt or equity through a security token
- Real-estate investment trusts targeted at investors looking for diversification of their portfolio
- Equity through commercialized properties and income from rent
- IP asset-backed tokens
- Accounts receivable/payable
The primary asset-backed token categories
Equity and debt tokenization
These are primarily used in funding startups. Middlemen such as conventional exchanges and investment banks can be avoided.
Asset-backed tokens for commodities
Tokens that are backed by tangible assets need authentication to determine the token’s validity. A market is already present for auditors that authenticate the security and trustworthiness of custodial storage facilities for commodities. They could benefit from new opportunities that utilize blockchain.
Hard, non-fungible assets
These are tangible assets that belong to an individual or a firm. There are multiple prospects for the tokenization of hard assets on the blockchain.
Soft, non-fungible assets
Soft assets, when compared to hard assets, do not have a physical presence. They are difficult to quantify and evaluate. Asset-backed tokens can similarly fetch price discovery and liquidity to these assets.
-> Intellectual property (IP) tokenization
-> Digital Assets Collectibles Tokenization
These are examples of soft, non-fungible assets.
The road ahead for security tokens
Asset-backed tokens feature similar benefits to Bitcoin, such as fungibility, transferability, divisibility, scarcity, and durability. Except with asset-backed tokens, these benefits are applied to tangible assets.
Asset-backed and security tokens are disposed to reduce volatility in comparison to utility tokens and cryptocurrencies. Tokens can be constantly traded on exchanges providing largely enhanced price discovery. Markets that operate regardless of geographical locations or time zones may give security token trading opportunities to investors globally.
Similarly, reputed firms may soon begin issuing security tokens worth billions of dollars to investors globally. Asset tokenization has a bright future to look forward to.
