There is tremendous value in the world of crypto!

Given some of our recent opinions (linked below), you probably did not expect to hear those words from us. Digital tokenization of assets, made possible by the crypto-blockchain construct, can boost efficiency in the capital markets

The world of crypto holds tremendous value! Given some of our recent opinions (linked below), you probably did not expect to hear those words from us. Digital tokenization of assets, made possible by the crypto-blockchain construct, can boost efficiency in the capital markets, thus greasing the wheels that drive the economy.

Our views on cryptocurrencies and meme coins haven’t changed, but digital asset tokenization is different and could drastically redesign financial markets for the benefit of the capital markets and the economy.

What Is Tokenization?

Asset tokenization is the act of digitizing the ownership of an asset. At a very high level, it is not that different from the way your bank manages your checking account. Your bank doesn’t have a vault stuffed with your cash in it. Instead, it has a computer with a series of 1s and 0s representing your cash balance. Banks essentially digitize our money.

Digital asset tokens represent real-world assets, just as the banks’ 1s and 0s represent your cash. The range of assets that can be tokenized is limitless. Before we get into the details of tokenizing assets, it’s worth sharing some unique examples of how tokenizing assets benefits the sellers and buyers of the tokens. Consider these possibilities:

Movie Property Rights

A movie producer may issue tokens to fund the production of a movie. Not only would this finance the movie creation, but it might also allow the producer more artistic freedom by avoiding the large studio companies that often dictate budgets and many aspects of the movie.

In exchange for their funding, the token owners might receive a percentage of future revenue from the film and the rights or partial rights to the film. Furthermore, they might also receive free premiere tickets as a bonus.

Drug Development

A scientist or pharmaceutical company may source capital to research a new cancer drug via tokens. In exchange for funding, token owners could receive the rights and future revenue from the drug. Not only would this provide a new source of funding for the pharmaceutical industry, but it’s also a new way for individuals to donate to a cause they care about and possibly benefit financially.

Art

A painting might be tokenized to share ownership of one painting or a collection of art. Token holders, for their part, could receive revenue if the art is leased to museums. Further, art enthusiast token holders can own a fraction of a prized piece of art. While revenue may or may not benefit the token holder, some ascribe much non-financial value to owning such works of art.

Future Earnings of an Athlete

A 16-year-old high school athlete with exceptional baseball skills but little money could tokenize his future baseball income. Token holders who can scout athletes at a young age can provide some income for the kid today and share in his revenue if he makes it to the big leagues.

Hotel Rooms

An investor or company could buy a hotel and fund its purchase with room tokens. The holder of the tokens may receive future revenue whenever the room is rented. Moreover, tokens may give the investor a discount for that room or other rooms owned by the hotel owner.

Here are a few more ideas to highlight just how distinctive and vast the potential to raise and invest capital is:

We get into the tokenization weeds a bit in the following sections. However, whether you stop reading here or at the end, what we hope you take away from this article is that the tokenization process opens many new doors for those looking for capital funding. Equally, it significantly increases the number of unique and diversified investment opportunities for investors.

More simply, it makes capital markets more effective!

How It Works

The following is a step-by-step summary of the tokenization process:

Token Platforms And Exchanges

The platform and exchanges take the digital token from an idea to a funding mechanism and tradable asset.

The token platform is like the factory for our product. The platform includes the lawyers, technical analysts, and back offices responsible for creating the digital security. Thus, it is where the tokens are created, hosted, and managed. This comprises regulatory compliance, initiation of smart contracts, and token creation.

Ethereum, Binance Smart Chain, Polygon, and Solana are a few of the larger platforms. The token issuer is mainly responsible for managing platform-related tasks.

Token exchanges, like the stock exchanges, are where the tokens are traded after they are created on the platform. Some examples include Coinbase (NASDAQ:COIN), Binance, and Kraken. Traders, investors, and broker/dealers are the primary users of the exchanges.

Some companies like tZERO offer both platform and exchange services. Furthermore, they are an SEC-registered special-purpose broker-dealer for digital tokens.

The importance of blockchain is that it provides much more transparency than the current financial system. A token’s ownership and its entire transaction history are available for anyone to see. Furthermore, the platforms and exchanges ensure that the tokens are tied to an asset and verified by external data