Tokenization
Explained

Tokenization is disrupting the capital markets and opening a new world of opportunities. Learn how blockchain technology is revolutionizing how we invest and trade shares.

What Is Tokenization and How Does It Work?

The tokenization of assets refers to the creation of a digital representation - a security token - of a real tradeable asset. Much like a traditional share on the stock market, the security token gives the buyer partial ownership of a company, a piece of art, real estate or participation in an investment fund. The company issuing the token does so in a security token offering (STO), selling the token to investors on a cryptocurrency exchange. The transactions are verified through smart contracts and stored on a blockchain virtual ledger system. Unlike crypto coins and initial coin offerings (ICO), security tokens have better legal protection, making them a more secure blockchain investment.

The possiblities and benefits of this relatively new way of investing are almost endless. Splitting otherwise illiquid assets into small parts and making them available on global trading platforms opens up investments to a much wider audience - in the process democratizing traditionally difficult to enter markets. Bringing together the huge amount of capital present in traditional markets with the speed and adaptability of blockchain technology will fundamentally change the way we invest.

Ethereum crypto coin blockchain investment
Liquidity

The tokenisation of typically illiquid assets such as fine art and real estate allows investors to trade the security token shares on a secondary market. Traditionally in these markets large amounts of capital would be tied up for years and subject to high trading fees. This new access to a wider market increases the liquidity, benefitting investors who gain more freedom and flexibility in their investments.

Speed

Purchases on even the most advanced stock exchanges typically take 2 days to clear. Because crypto transactions are processed with smart contracts on the blockchain and the process is mostly automated, token transactions can be cleared within minutes. Secure automation and a lack of intermediaries not only leads to faster trading but also much lower transaction fees.

Accessiblity

It is no exaggeration to describe tokenisation as a revolution in the investment sector. Given that security tokens are highly divisible and more easily tradable than other investment types, they open up investment opportunities to a much wider audience. Their global tradability and increased liquidity also reduce minimum investment amounts and periods.

Transparency

Security tokens also substantially increase transparency in the investment market. An immutable record of ownership and the token holder’s rights and legal responsibilities are embedded directly with the token. This allows investors to know who has previously owned the token, who they are dealing with and what their rights as token owner are.

We foresee that tokenization could make the financial industry more accessible, cheaper, faster and easier, thereby possibly unlocking trillions of euros in currently illiquid assets, and vastly increasing the volumes of trades.

Deloitte
Inside Magazine Issue 19

450
million USD

raised in STOs
in 2019

9
%

avg. STO returns
(April 2020)

8
trillion USD

STO market size
by 2025

59
%

STO market compound annual growth rate (CAGR) until 2030