Technology-wise, the centerpiece of digital investing is the token. By token, I mean a process of creating a digital representation of a non-digital asset. It could be anything from art, property, and precious metals. Several types of tokens can be deployed in a tokenization process, but for this content, we will be focused on the security tokens, which represent ownership or contract associated with the underlying asset by definition. Under the security token umbrella, we will see two subtypes, debt (considered the equivalent of bonds) and equity (considered the equivalent of shares). As it is possible to see, there are a couple of similarities to the traditional market, but the fractionalization, flexibility, and settlement time, help tokenization overcome some challenges still faced by the traditional market.
The fractionalized ownership is a big win for the security tokens, as it helps lower the barrier for an investor to enter. In a virtual environment, you can break assets into really small pieces, without jeopardizing any content data. For example, a real estate property worth $500,000,000 can be fractionalized into 500,000 tokens worth $1000 each
It’s not just about fractionalized ownership, of course. A token gives flexibility to the players to create specific security to address their needs. The business side, as an issuer of the security, has the ability to design a customized token that will reflect their precise classes of investment and fee structure at a considerable compact cost. As a result, the investor side will be exposed to several types and classes of investments. It will allow them to create a portfolio that better reflects their strategy, goals, and risk appetite while ensuring a good level of diversification by investing in low correlated assets. There’s no need to allocate a hundred million to a high-risk investment to achieve potentially greater returns.
And then, there is the settlement time. Tokens can be traded 24/7 and the whole transaction can be done within minutes. Investor acquisition is stored and accessed securely through an investing platform, and they are the fraction asset owner. Tokenization overcomes the T+3/T+2 traditional market timeline, and after the final click/touch, it is a done deal.
Here are some examples of what is in there for an investor: A) regular investors can be part of it, you just need to have a $1000 B) they don’t need to allocate their entire capital in one basket. Previously, if an investor wanted to invest in real estate, for example, they would need to allocate a large amount of money or apply for a mortgage. C) they can reduce their risk by choosing low correlated assets to invest in. You can test the waters by buying a security token from a high-class commercial real estate property, get a chance to earn capital gains and passive income.
Bottom line: tokenization is helping make digital investment happen for everyone but in a protected way. Investors can now participate in types of investment and value creation previously available only to a select few. Businesses can issue securities embedded in the appropriate compliance and also ensure the suitability to the investor. It is a very exciting moment for the investment market, as we will witnesses new possibilities happen within this new reality.
As well, we'd like to ask you to subscribe to our mailing list, so that you're not left out of our content and news