Tokenization process
The process starts with identifying and selecting an asset. This can vary from physical goods such as real estate and art to financial instruments such as shares in a company or debt in the form of bonds. It is crucial that the selected asset has a measurable value and is suitable for being divided into smaller parts. After the selection of an asset, a valuation process follows, often involved in experts to determine the value. This step is essential because it lays the foundation for how the tokens are priced and published. The assets is then divided into digital tokens, whereby each token represents part of the property in the asset. These tokens are created and managed on a blockchain, which acts as a decentralized and unchanging ledger.
Blockchain technology plays a crucial role in this process. It offers a safe and transparent way to keep the ownership of the tokens. Because every transaction is registered on the blockchain, it is virtually impossible to forfeit or manipulate the data. This ensures trust and integrity in the system. Once the tokens have been created, they are published and made available for purchase by investors. This opens the door for a wider group of investors to participate in the market for that specific asset. For example, by tucking an expensive property, individual investors can have a fraction of the building, which would otherwise be unreachable due to the high costs.
Advantages Asset Tokenization
Asset Tokenization offers numerous significant benefits that can fundamentally change the way we interact with and invest in various assets. Below, five of the biggest benefits have been explained in more detail:
Increased liquidity
A considerable advantage is the increased liquidity, which is expressed in various ways. Firstly, the division of assets into smaller units ensures that more people can invest in assets that were previously out of reach. This not only increases the potential market, but also attracts more buyers. In addition, unlike traditional markets, where transactions can take a long time, Tokenization offers the possibility of faster transactions, with almost immediate settlement (settlement). An additional advantage is the possibility of continuous trade, since digital markets are not limited to fixed trading times.
Fractional ownership
Fractional ownership, a different core advantage of Tokenization, makes high-value assets such as luxury real estate or artworks more accessible to ordinary investors. This opens new investment options that used to be only reserved for the more wealthy investors. At the same time, smaller investors enable to diversify their portfolios by investing in various types of assets, which reduces the risk and increases the potential for higher returns.
Transparency and safety
The transparency and safety offered by Tokenization are also significant. The integrity of investment data is guaranteed by the registration of transactions on a blockchain, which makes it easier to verify the ownership history and the current owner of a token. Moreover, the nature of blockchain makes it very difficult to manipulate or falsify data, which considerably reduces the risk of fraud.
Efficiency
The need for intermediaries such as brokers and lawyers is reduced, leading to lower transaction costs and a streamlined investment process. In addition, Smart Contracts (pieces of code) ensure automation of the implementation of agreements as soon as certain conditions are met, which increases efficiency and reduces the risk of human errors.
Global accessibility
Investors from all over the world can have access to markets that were previously outside their reach, which ensures a more inclusive and diversified investment environment. This global reach can also lead to a higher valuation of certain assets, because demand is no longer limited to local or regional investors.
These benefits illustrate how Asset Tokenization not only improves the accessibility of investments, but also introduces new levels of efficiency and safety in the way we buy, sell and manage certain assets. It opens the door for a wide range of people to participate in markets that were once closed, making the financial markets more democratic and more inclusive. With the continuous development and integration of blockchain technology in the financial sector, it is likely that we will see even more innovative applications and benefits of Asset Tokenization in the future.
Example from practice
Earlier we indicated that from traditional financial institutions there is increasing interest in the market of digital assets and blockchain networks. In this item we indicated, among other things, that ABN AMRO successfully published a digital bond on the blockchain network of Polygon (a second layer on top of the Ethereum network).
Another example from practice is, among other things, the American private equity giant KKR. KKR (Kohlberg, Kravis, Roberts & Co.) is a leading global private equity company that specializes in various investment strategies such as Leveraged Buyouts (LBOS), growth capital and distressed investments. KKR is known for restructuring and improving companies for later sales or IPO. With billions of managed capacity, it is one of the largest and most influential investment firms in the world.
In collaboration with the company Securitize, a prominent company in digital securities, KKR announced the launch of a Tokenized Fund that is an interest in the Health Care Strategic Growth Fund II (HCSG II) token on the Avalane Blockchain. It is the first time that one of KKR's alternative investment strategies in the United States has been offered in a digital format. The fund, managed by Securitize Capital, enables investors to invest in KKR's strategy for growth investments in healthcare. Previously, investments in such private market funds were mainly limited to large institutional investors and very wealthy individuals.
The tokenization of this fund uses the Avalanche blockchain and plays a crucial role in the transition to digital financial products. Avalanche distinguishes itself as an environmentally friendly smart contract platform, suitable for the scalable global digital financial products, with almost immediate transaction litter (settlement). The introduction of this tokenized fund by Securitize illustrates significant progress in the financial market, where innovation and accessibility are paramount. This initiative can stimulate more blockchain activities under leading investment firms, which contributes to the democratization of access to private equity investments
