Tokenization has gained more traction recently than you would think. Between 2021 and 2026, the market for asset tokenization is predicted to grow at a compounded annual growth rate of 19%. In a mere 5 years, this market would rise from $2.3 billion to $5.6 billion in value.
The COVID-19 crisis left the global economy struggling with supply chain issues, resulting in an illiquid situation that demanded solutions.
Furthermore, the digital revolution brought every imaginable data vulnerability into transactional equations, with cybercrime at an all-time high. During the Cybertech Europe 2022 conference, Alessandro Profumo revealed that cybercrime cost the globe over $6 trillion in 2021.
It is here that asset tokenization takes to the front from remaining on the back burner for far too long. Supported by permissioned blockchain technology, asset tokenization has the potential to help businesses raise capital and expedite world-building.
Let’s understand the fundamentals of this.
Raising Capital Using Tokenized Assets: Hyperledger
Capital is the elemental seed that every business needs to produce something.
Traditionally, companies would take the tried-and-tested road to raise capital – IPOs, venture capitalists, loans, etc. However, the uncertainty involved with these financing options began to cost companies precious time and hidden expenses.
A highly lucrative and liquid alternative was tokenized assets.
What are tokenized assets in capital raising?
When an issuer leverages cryptocurrency to digitize and securitize real-world assets into digital tokens, a tokenized asset is created. Tokenized assets are highly liquid and readily available to trade in exchange for capital funding.
Numerous companies have since emerged that utilize Hyperledger to help enterprises in need of capital funding trade in digitized tokens of their chosen assets.
What kind of assets can be tokenized?
Any kind of real-world asset worth a good value can be tokenized, for example:
Stock, bonds, and commodities
Antiques and artwork
The inherent nature of tokens makes the illiquid assets readily tradeable in exchange for needs fulfillment.
If your business is struggling with raising capital, any asset of equivalent value can be tokenized on cryptocurrency and traded in exchange for funding. It’s that simple.
Raising Capital for Large, Illiquid Projects: Ethereum
3% of the global FOREX trading comprises tokenized assets.
Tokenization has the liberating potential of converting illiquid assets like real estate and infrastructure into highly liquid, flowing capital. Hyperledger and Ethereum allow for the fragmentation of large properties and infrastructure for conversion into digital tokens.
This essentially means that a whole property can be broken into virtual parts, each with an assigned token that has its own set value. Each token contains its own “Smart Contract” that governs the compliances, terms and conditions, regulations, and ownership rights of the property fragment it represents.
Depending on the quantum of capital that a large, illiquid project needs to raise, it can trade its tokenized property to acquire capital for project execution. Since tokenized assets are based on blockchain, the transactions are immutable, decentralized, and secure.
A few years ago, the idea of breaking a property down into parts for trading in exchange for raising capital would have been laughed at. Not only does tokenization help create a flexible value in real estate, but it also sets this industry free from the limitations of exhaustive sale timelines.
Tokenization has given new meaning to property liquidity, and very favorably so.
Has Any Company Done This Yet?
The best example is illustrated by the Historical Lueneberg Building in Germany’s Hamburg, which went up for tokenization in 2020.
The complex is a boutique setting of cafes, cute restaurants, quaint shops, and many more characteristic commerce outlets; overall, the building is of great historical importance to the locals.
The tokenization of the property raised a whopping $1.5 million for the restoration and preservation of the heritage complex. Each token represented a value of $1 and went online with a minimum trade value of $10.
Many more such instances can be found happening the world over.
In another example, Elevated Returns successfully achieved the tokenization of the St. Regis Aspen resort. They raised a funding of $18 million, giving the purchases a small stake of ownership in the resort chain. The name of the tokenized assets for this resort is Aspen Digital.
What are the Benefits of Blockchain in Asset Tokenization for Capital Raising?
Speaking in the context of raising capital for large, illiquid projects, leveraging blockchains and tokenization unleashes immense potential and benefits:
Blockchain implementation in property trading eliminates the traditional middlemen and brokerage route, directly generating cost and time savings
Blockchains bring transparency in record keeping, automated and smart contracts, and decentralized and immutable storage. This ensures the economy of bond raising and fundraising significantly
Blockchains, with their capability to hardwire compliance into smart contracts, help businesses save on corresponding expenditures. LexisNexis reports that the financial industry alone has a cost of $181 billion annually on compliance issues
Business facilitation is made possible by increasing the liquidity available to companies.
Blockchains, Hyperledger, cryptocurrency - these are all enablers for the future of funding and capital raising. Albeit in fledgling stages currently, this technology holds the key to revolutionizing illiquid assets and making them swiftly tradeable.
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