Tokenization of real-world assets is no longer a concept limited to the realms of crypto enthusiasts. As we approach the end of this decade, the narrative around tokenized assets has evolved, showcasing its potential to revolutionize various sectors, from agriculture to music.
What is Real World Assets Tokenization?
Real-world asset tokenization involves creating a digital representation of a tangible asset using blockchain technology. This process allows for the fractional ownership of assets, making them more accessible and liquid.
By converting these assets into tokens, they can be easily traded, sold, or held, democratizing access and potentially transforming traditional industries.
Some Examples and Success Stories
1. Intellectual Property and Patent Tokenization
A musician could tokenize their song’s copyright and sell fractional ownership to fans or investors. This approach not only provides immediate funding but also ensures that the artist retains a portion of the rights and can benefit from future royalties.
DJ Justin “3LAU” Blau is introducing Royal, a music tokenization platform that allows listeners to invest in songs by purchasing crypto tokens representing song royalty rights. This innovative platform could potentially revolutionize traditional record deals by enabling music fans to earn a portion of song royalties. The buzz around Royal has led to a significant $16 million in funding during its crypto seed round.
Tokenization solutions for agricultural production are emerging as game-changers. For instance, farmers in Kenya now receive their payouts just days after the harvesting season ends, a significant improvement from the traditional six-month wait. This change is attributed to the tokenization solutions provided by decentralized insurance protocol Etherisc.
3. Real Estate
Stephan Rind from BrickMark Group highlighted the potential of asset tokenization in bridging the wealth distribution gap. He emphasized that tokenization could democratize access to financial instruments, from real estate to other tangible assets.
Real estate tokenization is gaining traction, with the market size projected to surge from $2.7 billion in 2022 to $18.2 billion by 2032. Tokenization addresses challenges like low accessibility, liquidity issues, and lack of transparency in the real estate sector.
Finka shared their experience of tokenizing La Pradera, a cattle ranch in Bolivia. This ranch, spanning 3,000 hectares with over 3,500 cows, was tokenized to represent the value creation from grass to cash.
5. Currency and Stablecoins
One of the most prevalent forms of real-world asset tokenization is the creation of stablecoins. Stablecoins like Tether (USDT) or USDC are tokenized versions of fiat currencies.
Each token typically represents one actual dollar (or another fiat currency) that the issuing company holds in reserve. These tokens allow for faster and direct settlements between parties, bypassing traditional banking systems. They provide the benefits of cryptocurrency, such as quick transfers and borderless transactions, while maintaining the stability of fiat currency.
6. Art and Collectibles
Imagine desiring an Andy Warhol artwork, which traditionally might be out of reach for many due to its astronomical price. However, with tokenization, it’s now possible to own “shares” of such artworks.
A real-life example is a company named Freeport, which offered fractionalized shares of Andy Warhol paintings. They created 1,000 tokens representing shares of Warhol’s “Rebel Without a Cause.” For just under $200, one could own 1/1000th of this iconic piece.
7. Alternative Assets in DeFi
Traditional funds and asset issuers have recently launched programs to tokenize alternative assets via public crypto networks. For instance, the private-equity firm Hamilton Lane collaborated with Securitize, a digital asset issuance platform, to tokenize a portion of its $2.1 billion flagship equity fund on the Polygon network. This move drastically reduced the minimum investment requirement from the typical $5 million for private-equity investors to just $20,000.
8. Bonds and Deposits
The Monetary Authority of Singapore (MAS) introduced Project Guardian, a pilot program aiming to tokenize bonds and deposits for use in various DeFi strategies. Banks participating in this initiative can tokenize bonds and deposits, which can then be utilized within permissioned liquidity pools.
Such tokenized assets can be lent out on DeFi platforms like Aave and Compound to earn interest or serve as collateral for credit access. Initial partners for this pilot include JPMorgan, DBS Bank, and Marketnode.
9. Private Loans to Businesses
Several blockchain protocols are leveraging DeFi to offer private loans to businesses using tokenized real-world assets. Protocols such as Maple, Centrifuge, Goldfinch, Credix, TrueFi, Clearpool, and Ribbon Lend have collectively provided loans worth $4.2 billion, with active loans standing at $456 million. These platforms offer an average APR of 12.63%.
The tokenization of real-world assets is paving the way for a more inclusive, transparent, and efficient global economy. As industries recognize its potential, we can expect a broader adoption and innovative applications in the near future.