Defactor's Prediction: Asset Classes That Will Be Most Disrupted By Tokenisation

Tokenisation facilitates opportunities to represent ownership or access rights to assets, whether physical or digital, as a digital token on a decentralised and secure blockchain ledger. The integration of tokenisation has caused a transformative shift in the financial and investment sectors, leveraging blockchain technology to represent assets as digital tokens. 

Some of the key benefits of tokenisation are:

• Enhanced liquidity: Enabling swift transactions, efficient tradability and increased accessibility and as a result, reducing ownership and transaction costs
• Democratised investment: Enabling fractional ownership, allowing a broader spectrum of individuals to participate in assets that were once reserved for a select few. This inclusivity opens up new investment opportunities and diversifies the investor base, creating a more equitable and accessible investment landscape.
• Heightened security standards:  With blockchain as the underlying technology, tokenised assets benefit from enhanced transparency since the information recorded, once recorded, remains immutable. Tokenisation not only revolutionises financial processes, by mitigating the risk of fraud and fostering trust, but it also elevates the overall security and integrity of the modern financial landscape.

‍

The application of tokenisation extends to many different industries and Roland Berger, a management consulting firm perfectly illustrates this in the image below, providing real-world examples:

The contents of this image are derived from Roland Berger: Tokenization of real-world assets: unlocking a new era of ownership, trading, and investment

‍

So, which asset classes will be most disrupted by tokenisation?

According to our experts at Defactor, these are the asset classes that they predict could be most disrupted by tokenisation;

‍

Stablecoins 

While stablecoins have gained popularity for their pegging to stable assets like fiat currencies, they face a double-edged sword in terms of disruption. On the one hand, increased liquidity and accessibility through tokenisation enables stablecoins to retain their value over time. On the other hand, scaling can be a challenge since representing stable assets as digital tokens on a blockchain can pose a difficulty when trying to accommodate a larger volume of transactions. 

Despite this, scaling is crucial for stablecoins to maintain their efficiency and stability, hence proper tokenisation on-chain infrastructure may be the key to achieving seamless scalability. However, the silver lining lies in stablecoin’s adherence to the Markets in Crypto Assets (MiCA) framework. This recent EU-wide legislation lays a trusted foundation for guidance, potentially paving the way for broader institutional adoption of tokenisation.

‍

Niche community-based assets 

Assets tied to niche communities, such as wine trading, are anticipated to experience significant disruption through tokenisation. This democratising technology allows more individuals who are enthusiasts of their niche to participate in owning and trading these specialised assets, breaking down barriers that once limited access to exclusive markets. 

‍

Property

Converting real estate into digital tokens enables fractional ownership to make property investments more accessible and liquid. Tokenisation transforms the dynamics of property transactions, creating a paradigm shift in the buying, selling, and trading of real estate assets. It not only enhances financial flexibility but also fosters community engagement. Through tokenisation, it becomes feasible to represent ownership shares of cherished local buildings or institutions, allowing community members who deeply value these properties to actively contribute to its long-term sustainability. 

‍

‍

Precious metals

The process of tokenising precious metals involves converting physical metals, such as gold, silver, platinum, or other valuable metals, into digital tokens on a blockchain. For instance, if a kilogram of gold undergoes tokenisation, it can be digitally subdivided into 1,000 smaller units, with each token representing a specific quantity, such as one unit per gram. Thus, each digital token corresponds to a portion of the precious metal being tokenised. These tokens are then tradable, transferable, or purchasable digitally, offering investors a means to access gold without the need for physical ownership or storage.

‍

Credit

Digital tokens representing credit assets could streamline lending processes, creating more efficient credit liquidity, enhancing transparency, and making credit more accessible to a wider range of borrowers without needing to involve the traditional intermediary of banks.

‍

Supply chain

Assets belonging to the supply chain side stand to gain increased visibility and traceability through tokenisation. With supply chain processes being increasingly held accountable for transparency, relevant individuals interested in the information of specific supply chain networks can refer to the digital twin of information copied onto the blockchain. The immutable nature of the decentralised ledger ensures trust in verifiability checks, such that supply chains stick to ESG goals like environmental sustainability, ensured quality, and transparency.

‍

International trade 

Tokenisation has the potential to streamline international trade processes, particularly in areas like the bill of lading. Since the bill of lading is essentially documentation of goods that are being sent and received, by digitising and securing these documents on a blockchain, the traditional physical documentation required in international trade can be made redundant.

‍

Music rights 

From an artist's perspective, tokenisation offers a revolutionary approach to managing music ownership rights. Initiatives such as TokenTraxx are leveraging blockchain technology to bring transparency to royalty payments, speeding up the payment process, and empowering artists in the music industry. This not only ensures fair compensation but also opens up new avenues for artists to navigate the complex landscape of the music business.

‍

‍

Conclusion

The rise of tokenisation has marked a pivotal moment in the evolution of financial and investment landscapes. Enhanced liquidity, democratised investment opportunities, and heightened security standards have become the core strength of this decentralised technology. While some asset classes, like stablecoins, face challenges in scaling, the overarching trend is one of progress and innovation with new legislations providing a guiding path. Tokenisation not only breaks down traditional barriers but also fosters inclusivity, enabling broader participation in markets that were once exclusive. As we navigate this paradigm shift, it is evident that tokenisation is not merely a trend but a fundamental reimagining of how we perceive and interact with assets in the modern age.

‍

This article was inspired by Defactor Podcast episode 2

‍

‍