The Tokenisation of Assets
Christopher Heron October 2022
The tokenisation of assets will be the most significant social, economic and business innovation the world has ever seen!
It’s a bold statement that I think is easily proven.
According to Moore Global, the property industry globally is valued at $280 trillion. The lack of liquidity restricts market trading. Investors trying to sell real estate often face a liquidity premium (cost) estimated by PwC and Deloitte to be as high as 20%.
Despite current deflated values in crypto markets, Tokonomy is the next evolution of the digital economy.
The prediction to reach a value of $24 Trillion by 2027 represents a 40% CAGR.
A large chunk of the world’s wealth today is locked in illiquid assets. In a survey conducted in the U.S. in 1997, 56%+ of assets held by taxpayers with a net worth of between $600,000 and $1 million were illiquid. (Investment News, April 2001‘Crypto theses for 2022’, Messari, Jan 2022. 12. ‘Crypto theses for 2022’ ).
This suggests that about $56 trillion of value is locked up by inefficiencies in the marketplace — over four times the value of all the gold ever mined!
The digital asset market size is approximately US$350 billion (source: CoinMarketCap).
Property assets are already being listed with $2b already showing with more to come.
Moore Global predict that $1.4 trillion of international property assets will be tokenised, (fractionalised as digital tokens), on blockchain within five years. This will make real estate investment easier, cheaper, more efficient and more accessible.
But that is just real estate, consider the gold market, other metals, diamonds, personal assets etc…….
Asset tokenisation uses blockchain technology to represent ownership or rights to an asset as a tradable, on-chain token. Asset tokenisation can hypothetically refer to the tokenisation of any material or non-material thing possessing monetary value, including real estate, a piece of art, gold and financial market securities.
Asset tokenisation is among the most promising use cases for blockchain, with the upper bound of its growth potentially encompassing nearly all human economic activity.
A fluid and secure fractionalised ownership structure opens up the property market to everyone and truly democratises it. diamonds, personal assets etc…….Current Activity
Activity in this technology and marketplace is gathering steam. In the past year alone, the Big 4 consulting firms (PwC, Deloitte, EY, and KPMG) have studied asset tokenisation and concluded that it possesses the capacity to disrupt multiple industries, including the multi-trillion-dollar global industries of real estate and securities. The tokenisation and trading of securities and real estate are starting to happen.
I know of more than 60 property companies selling property through tokenisation several portals worth in excess of $2b asset value.
The global interest in — and a number of active markets for — the tokenization of real estate is increasing, including countries such as:
The Lifecycle of Tokenised Securities
- Deal Structuring — crucial decisions are made regarding the terms and conditions of the token. Deal structuring is an integral part of any asset offering, irrespective of the technology employed. Tokenisation is not meant to be a way of avoiding compliance with applicable legal and regulatory requirements; rather, the use of technology is intended to fundamentally improve operational processes to enable innovative financial solutions. The stages in the diagram shaded in blue are where technology can bring significant benefits.
- Digitisation — information traditionally stored in paper or document form is uploaded to the blockchain, coded in smart contracts, and tokens are issued.
- Primary distribution — tokens are distributed to investors in exchange for investment capital, and investor information is recorded on the digital register.
- Post-tokenisation management — corporate action management processes including dividend distribution and voting activity, many of which can be automated by smart contracts coded on the token. Post-tokenization management will continue throughout the life of the token until maturity or redemption.
- Secondary Trading — token holder can trade tokens with another investor over-the-counter or on an exchange, enhancing liquidity.
Asset tokenisation has several clear benefits over non-tokenised assets :
- Cost — the real estate product lifecycle is shortened and the complex interaction with intermediaries and middlemen is greatly diminished, as are the fees and charges associated with current practices.
- Speed — automated real estate transactions can be fully integrated with existing systems to significantly speed up settlement times.
- Utility — real estate assets can be easily used within other blockchain-based financial products without the cumbersome manual overhead.
- Liquidity — real estate assets can become more globally accessible, creating additional liquidity and less slippage for buyers/sellers.
- Transparency and Provenance — blockchains can provide an immutable audit trail of ownership for a real estate asset, such as its full transaction history and metadata on improvements made. Though in a carefully constructed system anonymity and compliance are not mutually exclusive!
- Risk Management — on-chain derivatives products can be built that open more advanced hedging strategies
- Efficiency — a reduction in administrative processes and difficulties associated with the management and trading of real estate assets can be realised
- Accessibility — ease of access for previously inaccessible investment opportunities can be achieved
Space as a service is the concept of translating physical assets into virtual or liquid assets.
How will SaaS impact Real Estate and Finance?
- The concept of space as a service as a service is becoming accepted.
- The design of the property is changing.
- The way it is sold has changed and will evolve further.
- The way that the supply chain works is changing.
- The way real estate is used is changing.
- The structure of financial investment in property is changing.
- Finance and financial investment in property assets are changing.
- We are seeing the rise of crowd ownership and funding models.
- Tokenisation and cryptocurrency are adding liquidity.
New systems for rental and purchase will need to be created to manage these changes. The transaction costs will be reduced through automated supply chains and space as a service will take over. The integration of all elements of the supply chain, sales, compliance, legal, design, components, building and finance will reduce the friction in transactions.
An NFT is a digital asset that represents real-world objects like art, music, in-game items, and videos. They are bought and sold online, and they are generally based on blockchain code with the same underlying software as many cryptocurrencies. They traded through NFT marketplaces using a digital, or smart wallet which can be operated securely using a smartphone or other digital device. Created in 2014, NFTs are an increasingly popular way to buy and sell digital artwork. The value of the market last year was $41 billion in 2021 which represents the same value as the global fine art market annually.
In the tokenisation of assets, different tokens can have different uses and they can be combined in one offering with multiple uses. Tokens could represent, investment, rental, leasing, profit sharing, profit taking, change of ownership, or equity release. Some tokens could have voting rights others not etc. The limits are only those of your imagination!
The platform is an advanced technology blockchain, resourced by internationally recognised cryptography and cybersecurity experts.
The platform has been designed, built, and launched the ground-breaking next-generation Temporal Blockchain, using proprietary consensus algorithms and quantum elements.
The Temporal Blockchain outperforms all other existing blockchain technology:
- Ultra-fast — fastest implemented blockchain (120,000+ tps live mainnet; 1.5m tps test net); near-instant settlement
- Massively scalable — immediate scalability for millions of users
- Quantum-resistant cryptography — proprietary consensus mechanism utilizing quantum entanglement
- BSI tested — tested by the British Standards Institution, the independent UK national standards body
- Patented technology — patents granted, with further patents pending
- Socially inclusive/accessible — usable via smartphones, Internet of Things devices, drones, cars
- Carbon neutral — no energy-consuming / environmentally damaging “mining” process
- Ultimately customizable.
The tokenisation of assets on a global scale will change all markets, property, and financial services. It will also change social and business structures as we create a new class of owner investors on a micro-scale. Think about that, shareholders are no longer necessary….the customers finance the asset production and development! Peer-to-peer safe investment on a massive scale. Oh, what will happen to the financial industry…….? Will peer-to-peer investment make it redundant?
The whole capital generation, lending and asset exchange chain is changed and becomes frictionless and safely automated.
The emergence of Bitcoin, cryptocurrency and blockchain is creating a new market for asset liquidity, exchange and finance.
Originally published at https://www.linkedin.com.