The term "tokenization of assets" describes the process of turning a physical asset or a digital asset into a token and storing them in a distributed ledger using blockchain technology.
Asset tokenization is a much-needed feature because it increases liquidity by allowing the trading of asset-backed tokens on secondary markets. Tokenization increases market efficiency by reducing the time, cost, and complexity associated with traditional asset transfers.
Asset fractional ownership is made possible through tokenization, wherein smaller tokenized units are created, allowing individuals or organizations to possess a portion of an asset instead of owning the entire asset.
Global trading: 24/7 global trading of blockchain-based tokenized assets is achievable without the requirement of intermediaries.
By leveraging blockchain's inherent cryptography and immutable features, tokenization of assets not only strengthens security but also streamlines the buying, selling, and transferring of assets. This is achieved through the automation of cumbersome processes using smart contract programs.
Tokenization increases marketability and accessibility of the high capital assets and allows a broader pool of investors to strengthen their investment portfolio.
A token standard designed specifically to represent ownership or investment in a tokenized physical asset or digital asset is security token. Security tokens are designed and mainly used to comply with securities regulations and represent traditional financial assets such as stocks, bonds, real estate, or investment funds.
Key properties of Security Tokens:
Asset Backing : The value of security tokens is derived from an underlying real-world asset or financial instrument.
Transferability: Leveraging blockchain technology enables expedited and streamlined transfer of ownership, enhancing efficiency in the process. Digital asset exchanges or alternative trading systems facilitate the trading of security tokens.
Regulatory Compliance: Security tokens are governed by securities laws and regulations. Issuance and trading of security tokens must comply with relevant securities regulations, which acts as safeguards for investors.
ERC1400 & XRC1400:
ERC1400, an Ethereum standard and XRC1400, an XDC blockchain standard for security tokens provides a set of rules and guidelines for issuing and managing security tokens. Key properties of security token standards that makes it a go to standard for issuing security tokens are.,
Partitioning: Based on the representation of ownership, Security tokens provides different categories or classes or partitioning of the assets.
Equity tokens: Representing ownership in a company.
Debt Tokens: Representing debt instruments such as bonds or loans.
Asset-backed Tokens: Representing physical assets such as real estate, artwork etc.
Other categories include Hybrid tokens, Revenue Sharing tokens etc.
Transfer Restriction: Security tokens implies restriction on transfer of security tokens. This helps ensure that transfers comply with legal regulations and issuer-specific rules.
Issuance and Redemption: Security token standards defines functions that allow for the creation of new tokens when assets are tokenized and the redemption of tokens when investors want to convert them back into the underlying assets.
Other properties include Document Management, Interoperability, and compliance management.
Tokenization provides various benefits, including increased liquidity, fractional ownership, enhanced security, transparency, and interoperability and Security tokens enables tokenization of assets by providing partitioning, document management and compliance management controlling issuance and redemption of asset ownership.
We, at Plugin are actively engaged in a Security Token project with a mission to transform the dream of property ownership into a tangible reality. Stay informed about the latest updates by subscribing to Plugin's monthly newsletter at https://www.goplugin.co/#newsletter.