Tokenisation – don’t let the crypto crash dissuade you from good technology
The crash of cryptocurrencies has been a spectacle for many investors to watch. For investors who have seen their cryptocurrency portfolios plummet in the past twelve months, it is completely fair to have an adverse reaction to building any exposure in the space anymore.
For investors who were lucky enough to sell out before the crash or never bought in the first place, the crash can feel like a cautionary tale – a reminder that with overly optimistic asset speculation never lasts forever.
However, its consensus that the underlying blockchain technology is useful. The most obvious and practical use for blockchain technology is tokenisation of real-world assets. Unlike utility tokens that see their value linked to the usage of a particular crypto or Web3 application – security tokens denote a real-world value linked to an existing underlying asset.
This means that regardless of where the crypto-market goes, the technology behind security tokens is a non-stop source of value due to their ability to reduce transaction costs, increase liquidity in exotic or unlisted assets, allow fractional ownership of assets, and provide transparency / security to investors.
Reducing transaction costs
Transaction costs are a constant burden in the purchase and sale of any asset. For things like property – the transaction costs often eat into a large amount of the value generated in a sale and are driven by archaic laws that were designed for a completely different economy.
As security tokens can be programmed with logic and the transfer of ownership is clearly illustrated via a verifiable blockchain, they can reduce the cost of transferring ownership by 90%+.
As many assets can only be effectively sold as a whole (property, art, specific equities), the ability to find liquidity in these markets can be difficult. For instance, if you hold a single property investment, it is difficult to sell a fraction of your exposure in the public market.
However already in some jurisdictions with advanced security token laws – you can tokenise the entire house and sell these tokens to a fund or other private investors. Security tokens provide greater investor flexibility while also enabling efficient price discovery.
Democratising asset ownership and amplifying investor voice
The current system of AGMs and shareholder votes has struggled to stay relevant – with the minority shareholders often abstaining from votes or proxying through major institutional investors. Tokenisation is the first step to moving this entire process digital – which means that minor shareholders are still able to have a say in the operations of a company without having to dedicate their free-time to attending a day-long AGM.
These are just a couple of reasons to keep your eyes on security tokens and companies that are investing in the technology. As the future progresses, the space is ripe with opportunities and companies that adopt the technology will soon reap the major efficiency gains associated with it.