What future for crypto and asset tokenization?

With banks providing loans as early as Babylon in 1800 BC. AD, and of the “modern” banks that emerged in the 1470s, banks were not the fastest innovators.

However, the last 10 years have seen more advanced products and more adoption of disruptive technologies than in the previous 100 years, where traditional bricks and mortar, large branch network, product-limited financial institutions have given way to mobile, agile, multi-currency, e-banking, internet-based global service providers.

And it is not just the method of service delivery that has changed so dramatically, but the pace of change, triggered by the inclusive nature and tech-savvy social media generation demanding faster, more diverse and secured.

The demand for data, information and financial services, as well as the technology to support vast data consumption, has only been made possible by the advent of high-speed networks, smart phones and technology companies, translating these needs, enabling anyone, anywhere to trade international stocks, bonds and derivatives, arrange a mortgage, make deposits, exchange cryptocurrencies, electronically sign and send vital documents , with one click.

While the past 20 years may be the era of internet banking, 2020 kicked off the decade of crypto.

As of January 2022, there were approximately 10,000 cryptocurrencies, many of which were created for specific purposes with strong use cases, and others as speculative investment tools with spectacular volatility, few investors and even less volume.

Always a case of the wary buyer, some past coin offerings have had bad press due to hacking, loss of consumer confidence, lack of activity, crashing prices, and where the mere mention blockchain has sent the investment community into a frenzy.

And how times have changed, with much greater consumer demand, as, like bond and stock offerings, new coins come to market via initial exchange and security token offerings after a extensive due diligence of the trading platform.

Much has been written about the volatility of cryptocurrencies, with a prime example being Bitcoin worth over $67,000 in November 2021 and currently trading around $36,000. However, in the past, equity markets have also produced spectacular returns and losses, albeit over different time frames and are still considered a safer haven than crypto markets.

While the Wall Street Crash of 1929 saw major drops such as RCA common stock from $505 to $26 and DuPont from $217 to $80), the Black Swan events also sent stock markets soaring. For example, Alcoa posted 12-month returns of 217%, and risk-averse long-term portfolio holders paid off with Monster, with $2 stocks in 2005 reaching $140 in 2015, and the darling of the Amazon stock market, with savvy investors. buying at $2 in the 1990s, while today they are trading at $3,500. While stocks still represent a more stable investment platform, crypto has captured a new imagination with a new demographic.

With an almost bewildering choice of cryptocurrencies, the key issue will be the ability to seamlessly withdraw low-volatility, low-value stocks and move in and out of fiat currency to decide which type of coin is best for a long-term strategy.

So, with the requirement for a more stable digital crypto instrument, the latest area of ​​focus for investors, and some might say hype, is asset tokenization. Blockchain technology remains the vital component, mechanism and enabler to underpin crypto transactions.

Asset tokenization is where digital tokens are used to split ownership of assets. Physical objects are mirrored on the blockchain which manages ownership rights – and everything from property to college degrees and gold to stocks can be tokenized, with over $500 million already tokenized in real estate.

These tokens are created during a so-called STO (Security Token Offering), in which real estate is essentially divided into tradable digital assets stored on a blockchain.

The idea of ​​timeshare is not new. Since 1960, REITs (Real Estate Investment Trusts) have been introduced in the United States and by pooling the capital of investors, the real estate market has suddenly become much more accessible and allows investing in the underlying asset without having to purchase or manage all assets.

Fast forward to 2022 and the advent of tokenization, where real estate is split into small pieces, called tokens.

What are the benefits? Global real estate price increases, high bank rates, fewer opportunities for monetization, languishing assets earning little interest, high costs of ownership with fewer people able to pay current and future prices, all this can be handled by splitting and tokenization.

And because digital tokens on a blockchain can be transferred securely and efficiently without an intermediary, trading these asset-backed tokens suddenly becomes much easier and cheaper, leading to increased liquidity.

It’s easy to see why investors of all sizes are excited about this development. With a much lower market entry point with less initial investment, the global real estate market is valued at approximately $280 trillion, making it one of the largest, most illiquid and unconstrained markets. transparent to the world. And post-pandemic, in an era of rising costs, there are many distressed assets where such an investment approach can provide an economic lifeline for owners and competitive opportunities for retail investors.

One can almost imagine the scenario where an investor might be able to buy two tokens from a building or apartments in Chennai, ten tokens from a factory in Malaysia and three tokens from an apartment in Hong Kong, all payable in coins, through a single platform.

Recognizing this opportunity, Euro Exim Bank is investigating the tokenization of these assets and plans to offer several unique coins, assets backed by investment-grade instruments in an easy-to-trade blockchain-based token.

While the industry is still searching for the best solution, we believe that tokenization projects will position the bank as a crypto provider of choice, with provenance, security, assurance and value.

In addition to our coin and token strategy, our journey towards comprehensive document digitization and process digitization across the entire business ecosystem continues apace.

Our lofty ambitions and aspirations are to be the leading provider of commerce and cryptocurrency services via coins and tokens, contributing to better customer experience with fast cross-border payments, low transaction fees, efficient settlement and platform management, will facilitate access to distributed financial services for the unbanked, ultimately enabling digital financial inclusion.

By Dr Graham Bright, Head of Compliance and Operations, Euro Exim Bank

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