Tokenization: Which Areas Are Leading in the Application of New Technology?

Financial analyst at cryptoexchange Mikhail Karkhalev in's author's column on the advantages of tokenized assets and the main prospects in this area Tokenization became a popular concept in 2017 in the wake of …

Financial analyst at cryptoexchange Mikhail Karkhalev in's author's column on the advantages of tokenized assets and the main prospects in this area

Tokenization became a popular concept in 2017 in the wake of the growing popularity of smart contracts and ICOs. At that time, many projects raised huge sums under the slogan of tokenization of a certain sphere or industry. That said, not many startups have actually delivered on the promises they made to investors. The reason is that regulation is necessary for true tokenization, and regulation is just beginning to be adopted. Accordingly, the process of creating and introducing tokenized assets into the general use can take a lot of time. And we are only at the very beginning of the path. However, some jurisdictions, for example, Belarus, have already actively participated in creating conditions for tokenization.

What is tokenization?

Tokenization doesn't have one specific definition. In a general sense, it is the vesting of certain rights in the form of a token. Rights can be completely different – from the right to perform some actions to rights to securities or real estate.

According to a recent article by the Swiss University of St. Gallen, now it is possible to single out not even types, but archetypes of tokenization based on the features of tokens, drivers of the tokenization process and barriers to this process. Here are the main tokenization archetypes that researchers have identified.

Programmable money , which are solutions associated with tokenized currencies (e.g. stablecoins, central bank digital currencies) as an efficient means of exchange and value storage. Overcoming the shortcomings of existing solutions, payment tokens significantly optimize processes and allow you to automate many services on automated decentralized platforms (for example, micropayments).

Smart bankable assets (stocks, bonds, etc.) are also designed to optimize processes and facilitate the possibility of receiving investment rewards. By implementing the logic of the financial contract, it is possible to automate the processes of cash flow management and voting. As a result, this can lead to increased liquidity and real assets.

The availability of illiquid assets (Opening of illiquid assets – works of art, real estate, cars, etc.), whose main function is to mediate between the value of an asset and the asset itself. So, tokenized assets, unlike real ones, can be divided (which is difficult with real cars or paintings, for example).

Tokenized crowdfunding (Crowd Funding – capital of startups, P2P borrowing, etc.) has gained popularity in the form of ICOs by reducing the cost of entry due to the elimination of intermediaries. Where many related business models were previously not economically viable, tokens enable effective real-time crowd investments, ranging from private projects to venture capital. The focus is on fast and flexible trading as the basis for increasing liquidity.

Access to services (Service Access) , where tokens are used as a tool for obtaining rights to a specific service. Implemented by various industries, tokenized licenses or memberships provide simplified and efficient access to decentralized platforms. They are classified according to the functionality the token provides to the holder.

Platform Governance is a more abstract area of use for tokenizing incentive mechanisms as a means of coordination and collaboration. For example, tokens can be issued as rewards to users for completing certain tasks or performing certain behaviors (such as mining rewards). Besides the means of reaching consensus, the token can also be claimed and valued on its own to further stimulate community creation or voting. These may not be based on future monetization, but have social value by managing voting rights and creating a sense of community.

Digital sovereignty (Digital Sovereignty – CryptoKitties, etc.) is used for applications that require unique authorization and decentralized data access control for token holders. When implemented as a non-fungible token (NFT token), assets provide proof of identity and cannot be replicated. At the same time, users can manage game assets, for example, independently of a single owner of the platform (for example, CryptoKitties).

Tracking tokenization (Track & Tracing) is used to establish a tamper-proof record of ownership among various stakeholders. Such use cases are often associated with logistics processes in many industries and allow organizations to use tokens to increase the transparency of the life cycle of tangible or intangible assets.

What vivid examples of tokenization are there now?

The most striking example of tokenization is NFT tokens (non-fungible tokens). According to Coinmarketcap, the NFT market has exceeded $ 750 billion. The NFT market is based on certain works of art, which are often far from the concept of art. Nevertheless, thanks to the properties of the tokens themselves, even a simple pixel picture acquires its significant value.

Also, tokenizing artwork has become a trend. For example, some of the works of one of the most popular and iconic contemporary artists, Banksy, were sold as NFT tokens.

Another promising industry for tokenization is real estate. According to forecasts of the British company Moore Global, the expected volume of the tokenized real estate market could reach $ 1.4 trillion by 2026.

In the summer of 2020, regulated exchange Overstock tZERO began trading security tokens, which are proof of fractional ownership of a luxury resort in Colorado. The launch showed record trading volume, but interest was dampened by the market slowdown caused by the coronavirus pandemic. Subsequently, tZERO also partnered with the NYCED Group crowdfunding company to tokenize $ 18 million worth of real estate.

Another example from this area – in September 2021, an Indian fintech company launched a blockchain-based ledger to provide fractional ownership of real estate in the country.

How does tokenization work in financial markets?

Financial markets are one of the segments that have adapted most quickly to the tokenization trend. This is just an example of smart banking assets according to archetypes. And the demand for using tokens there is extremely high.

This is understood both at the company level and at the country level, which affects the adaptation of tokenization in different regions. In 2018, the Belarus Hi-Tech Park regulation launched the crypto platform, which tokenized popular assets – stocks, bonds, indices, ETFs, commodities, currencies and cryptocurrencies. The crypto platform became the first in the CIS and one of the first in the world to offer users work with a wide range of tokenized assets. And then she launched an educational project to work with them – Academy. In one of the lessons of the Academy, you can find out exactly what tokenized assets are .

The owner of a tokenized asset on has many of the rights that the owner of a real asset has. That is, the owners of tokenized shares receive an amendment for the dividend in tokens, the owners of tokenized bonds – income in tokens equal to the coupon income on the corresponding "security".

Currently, more than 3 thousand tokenized assets and more than 30 cryptocurrencies are available on the crypto platform , including the popular "memcoin" and Shiba Inu and the Dogeсoin token.

Not only individuals, but also legal entities can invest on the crypto platform. To do this, they need to go through a simple registration and verification procedure. After that, each company that will work with the platform will have access to global tokenized markets, combined with an exclusive level of service.

Without a doubt, the tokenization process is currently at an early stage of development. However, its prospects are colossal. The growth of this area requires movements in the regulatory adaptation of tokens in the world. However, there are already companies and jurisdictions that have made friends with tokenization and offer a wide selection of tokenized assets – to both individuals and legal entities from around the world.

The message contains information about the movement of the market, is not an investment research, should not be considered as investment advice and is a subjective point of view on the subject of the message of the author of the material.

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