The potential of blockchain technology is being explored by businesses and how they may use it to their advantage. Over 90% of the companies in Deloitte’s latest international blockchain study said they planned to invest in blockchain technology in the next year. However, the use of blockchain by businesses is mostly limited to transaction recording purposes.
In addition, businesses avoid public blockchain networks because of worries about scalability or privacy. On the other hand, Enterprises must grasp the exciting possibilities offered by blockchain, such as in the case of tokenization. Let’s take a closer look at tokenization and how it may be used in various scenarios.
What exactly is tokenization?
First, let’s take a moment to consider what tokenization is and how it may be put to good use. The general public often misunderstands the term “blockchain” because of its connection to cryptocurrency. A digital representation of a unit of value is what a token on the blockchain is all about.
It is possible to attribute a token to anything of value, such as digital assets or digital representations of real-world assets. You may turn any physical object into a digital asset through tokenization, making the trading and transfer of assets simpler. Tokenization, then, is converting real-world assets into digital tokens that may be stored on a blockchain.
Why Are Tokenization Use Cases Important?
At this point, you’re probably curious about the potential elements that influence the emphasis on tokenization use cases. Tokenization has several essential advantages that support its viability in various scenarios.
As a result of tokenization, regular investors may be encouraged to trade previously prohibitively costly assets and have poor liquidity.
Tokenization might increase assets’ liquidity by lowering the entry barrier to the market and the transactional minimum.
Tokenization also benefits from making it easier to work with authorities to have universal standards adopted.
On the other hand, Regulator uncertainty seems to be a substantial barrier to asset tokenization. Tokenization is doomed to failure if legal frameworks for blockchain transactions are not adequately prepared in many countries.
It’s also a problem because trading platforms dealing with tokenized assets don’t use the same technological standards. It’s not clear how tokenization will address these issues. It’s possible to find out the answer to this issue by looking at the current stage of tokenization for a variety of different assets.
Tokenization’s Use Cases
Tokenization is the conversion of physical assets into digital tokens on blockchain-based platforms. Tokenization’s widespread acceptance relies on a clear picture of how it will be put to use in the real world. There are several possibilities with a search for “what are examples of tokenization,” there are several possibilities. In order to better comprehend tokenization, we’ve compiled a list of the most common applications of the technology.
1. Precious metals tokenization
There is a long history of people valuing gold as an asset and investment vehicle. On the other hand, moving and storing gold would present several challenges. In addition, a significant portion of the world’s gold supply is held by national banks as reserve assets or by brokers acting as agents for the only firms able to sell gold to typical investors directly.
Tokenization makes sense for precious metals like gold since the market for these commodities is so little trade. With regards to markets with little liquidity, bigger corporations may choose bilateral agreements to settle their differences while promoting information asymmetries and restricting price discovery.
The precious metals industry has one of the greatest entrance barriers because of the significant initial investment requirements. An increasing number of countries require metal traceability throughout the supply chain to comply with stricter international laws.
Tokenization has the advantage of fractionalization, which may lower entry barriers and encourage smaller firms to reach new markets. Tokenization. Tokenization use cases for precious metals with higher market participation may lead to enhanced market liquidity.
In contrast, a bigger market would need the development of multilateral trading. Tokenization might enable atomic swaps and smart contracts to facilitate the settlement of complex multi-party deals in a secure and virtually real-time manner.
Cache. Gold (CGT), Pax Gold, and DGLD are significant examples of initiatives that secure precious metal tokenization. These experiments have proved that it is possible to improve the fairness of the gold market by delivering quick liquidity and low transaction costs.
2. Real Estate Asset Tokenization
Tokenization of real estate assets is another well-known use case for blockchain tokenization. When it comes to tokenization in real estate, the emphasis is on generating tokens representing fractional ownership of an asset. Financial instruments, securities, and digital assets may be tokenized in real estate.
It is feasible to program digital assets to include transaction history and ownership rights using the Ethereum blockchain. Also included are standards for ensuring that the asset issuance, distribution, and transfer operations are in accordance with applicable requirements. For example, tokenization in the real estate sector might concentrate on ensuring tokens are only transferred to particular parties.
Elevated Returns is a real estate tokenization example. In 2018, the New York-based asset management business executed its first tokenized real estate sale. Aspen, Colorado’s St. Regis Resort has been put on Ethereum blockchain for an $18 million agreement.
It’s interesting to note that Elevated Returns planned to sell almost half of the St. Regis Resort as a single asset. The corporation then decided to issue tokens for an 18.9 percent stake in the company’s stock. In conjunction with Templum Markets LLP, Elevated Returns used Indiegogo to sell its products.
3. Logistics Tokenization
What are some examples of tokenization in the real world? Logistics is the natural place to look for answers to this question. The logistics sector relies heavily on the Bill of Lading to prove ownership of goods. However, if you lose or misplace the Bill of Lading, there are significant inconsistencies, such as delays in delivery or claims for items.
CargoX is a potential approach that uses tokenization to overcome the problems with conventional logistics systems. The Smart Bill of Lading, or B/L, is used by the firm and is based on the Ethereum blockchain. The Smart B/L system mimics the token system in every way.
Using CargoX’s innovative approach, the carrier may generate the Smart B/L using their app. The Smart B/L may then be sent to the exporter by the carrier. The exporter may transfer ownership of Smart B/L tokens to importers after receiving payment from the latter. Therefore, the importer might prove ownership by presenting the carrier with the Smart B/L token. Thus, it is apparent how tokenization’s use cases are altering the logistics industry.
4. Non-fungible Tokens
NFTs, or non-fungible tokens, are a well-known example of blockchain-based tokenization. For tokenizing assets that cannot be split into smaller pieces or swapped for a comparable item, NFTs are the best choice of technology. For example, in the actual world, it is impossible to split the ownership of a certain piece of art.
When a person buys a work of art, he becomes the sole owner of it. Tokenization, on the other hand, may simply modify such traditional examples. In terms of NFT tokenization, NFT Art is the most common example to look at.
Non-fungible tokens are finding new life in the field of digital art. In addition to increasing authenticity, the tokenization of genuine artworks facilitates the transfer of ownership to artists or the highest bidder at an auction. In order to verify that virtual artworks are legitimate and scarce, NFTs employ blockchain technology and encryption.
The last word
Tokenization can transform company processes in various sectors, as seen by the many application cases. Tokenization may provide a wealth of value to the common investor, but businesses can also use it to revolutionize their business models from the ground up. Using tokenization in real estate, real-estate tokens, and logistics shows that tokenization is more than just a concept at this stage in the market.
The examples illustrate how tokenization may enhance operational efficiency, which is essential. Aside from streamlining company procedures, tokenization might spur the creation of new platforms by bringing together experts from other sectors. Now is the time to start learning about tokenization and all the amazing things it can do!