Blockchains have created a narrative that they are an underlying technology that powers cryptocurrencies that challenge the traditional financial system. However, in reality, blockchain is way more than that, with a multi-dimensional approach revolutionizing other segments in parallel. Asset tokenisation is a notable mention to witness a massive transformation. Top corporations like Deloitte, BNY Mellon, and EY believe that asset tokenisation will have a key role to play in helping blockchains achieve the 10% GDP milestone. In this piece, we shall see how asset tokenisation will help.
What is Asset Tokenisation?
Asset Tokenisation is a process where you can introduce real-world assets on blockchains and make them easily accessible. Due to such a trade-off, for the first time, many assets which have remained highly illiquid could experience new and profound participation moving forward.
How Does It Work?
Tokenisation consolidates origination, distribution, trading, clearing, settlement and safekeeping on a single platform using blockchain technology to streamline interoperability and faster process management. As a result, it becomes very easy to include diverse asset types within the trade bracket that previously needed regulatory clarity. Selling these assets also becomes relatively cheaper and simpler because they use a shared distributed ledger, which is transparent and easily verifiable.
How Asset Tokenisation Can Help Blockchains?
Through asset tokenisation, a wide range of assets that have remained inaccessible could enter the financial space, which shall trigger.
The real-estate sector market cap at the end of 2022 stood at a whopping $397.7 trillion. However, the most intriguing part here is participation. Someone based in Japan and wanting to buy a property in the US might face challenges owning the property. Why? Because of regulatory hurdles, technology barriers, and cross-regional operations. As a result, traditional markets have been largely cluttered and fragmented because segments like clearing, record keeping, and ownership couldn’t operate in unison with each other and share data.
The interoperability bottlenecks, exacerbated by legal complexities have sucked the liquidity out of the sector. Through asset tokenisation, assets can be represented on a blockchain, triggering faster settlement and ownership transfers without complexities despite operating in a different regulatory environment.
Accessibility is a challenge for many asset classes because they have multiple points of failure to overcome. To put that into perspective, imagine someone financing a big-budget movie. Could they ask for the public to invest in their production? The answer is no because of regulations. But through tokenisation, they can do that, and blockchain technology using smart contracts would ensure that everything is transparent and verifiable. In this way, the accessibility will be enhanced while investing in those asset classes that have remained inaccessible and highly profitable.
Many investors refrain from buying assets overseas because they find it hard to verify important metrics like returns, ownership history, and sale history. Why? Because respective parties designated with the task of looking after that might refrain from sharing sensitive information. As a result, it delays the economic decision-making capability of the investors. The interested investor can extract all the necessary information influencing their purchase choice through asset tokenisation that uses blockchain as an underlying technology.
Moreover, they can also do on-chain verification to track the asset’s movement over time, which shall help them understand the ownership and value. In this way, it can eliminate any chance of fraud that investors have to go through when buying properties.
Asset tokenisation also helps improve the composability of the traditional RWA or Real World Assets with the DeFi ecosystem. As a result, some of the conventional assets that couldn’t enter the DeFi space could do so through tokenisation. In doing so, not just the traditional assets will experience the exposure of the DeFi. Still, DeFi users can also harness their traditional assets to make gains on top of the DeFi ecosystem. For example, only those with cryptocurrencies could now enter the DeFi space. But what if you can use your land to mint a token equivalent of an ETH or other collateral on a lending and borrowing network like AAVE and gain exposure to the flash loans trade-off? In addition, better composability could also help users build their own token baskets representing their RWAs and list the same on the DeFi ecosystem to tap the pay-offs.
The Magic of the Oracles
So far, you have learned the ins and outs of asset-tokenisation, and you would have one doubt nonetheless. How will the data be relayed back to the blockchain ecosystem? And why would such a question come? Blockchains are decentralised, and when you move a whole new sector building on top of it, the data will play a key role. And as you know, blockchain data is heavily democratised, and that’s where oracles will make the difference
Oracles will provide real-time data to the blockchain ecosystem to keep arbitrage opportunities in check. For example, suppose the stocks, which are representative of an RWA on a protocol, have very stark price discrepancies. It should create big differences in the slippage. As a result, it could completely negate the concept of sustaining the RWA ecosystem. As a result, oracles will be the protective layer acting as a bridge between centralised and decentralised worlds to help RWAs scale to new heights.
The Future Ahead
Residential Real Estate Assets (RWAs) hold an estimated value exceeding $600 trillion. The potential impact of introducing even a fraction of this colossal value through tokenization on blockchains is significant. Such a move has the potential to propel the sector to unprecedented heights, a prospect that was previously deemed unthinkable.
At the moment, with RWAs, we have barely scratched the surface via tokenisation for pursuing the 10% GDP vision, which will be bolstered as the technology matures. What DeFi, NFTs, and Metaverse did for the blockchain space in the last bull market, RWAs will mirror the same impact to make blockchains sound more relevant for the future, and tokenisation will be an underlying technology validating that narrative.
In this transformative landscape, VE3 stands at the forefront of innovation, poised to play a pivotal role in unlocking the full potential of RWAs. Leveraging cutting-edge technologies and a forward-thinking approach, we are committed to bridging the gap between traditional finance and the blockchain ecosystem. The platform’s robust infrastructure facilitates seamless tokenization of real-world assets, providing a secure and efficient avenue for businesses and investors to participate in the burgeoning token economy. As the blockchain landscape continues to evolve, we emerge as a key player driving the adoption of RWAs and tokenization, ushering in a new era where the 10% GDP vision becomes not just a goal but a tangible reality. To know more, explore our innovative digital solutions or contact us directly.