Since its dawn in the 1970s, the digital age has had profound effects on global economies. Numerous industries, from hospitality to entertainment have seen their fundamental natures shaken, and their business strategies entirely redefined. However, the financial sector has only been partly influenced by this revolution. While existing systems like communication and data management models have significantly benefited from new technologies over the years, many opportunities have remained unexploited, among them being the trading and investment markets.
With the invention of the blockchain in 2008, things were finally looking up for finance. By promising borderless immediate value exchanges for anyone, from anywhere in the world, the technology seemingly had all the ingredients to transform the financial world into a more efficient, accessible and democratic sector. Fast-forward to more than 10-years later, and the blockchain has made a commendable name for itself in finance .
While the technology owes most of its fame to its prized crypto, the Bitcoin, related innovations like smart contracts and decentralized digital identity systems have also done well to push blockchain towards widespread adoption.
That said, blockchain is still a relatively young technology with low acceptance levels in mainstream finance. Experts may all agree on its disruptive potential, but it is clear that a lot more needs to be done to establish it as a standard platform for financial processes. Drawing analogy to the Internet evolution, you can liken the current state of the blockchain to the development of HTML in the early 90s, which facilitates the World Wide Web today. As the Internet had to go through the Web 2.0 stage , fueled by well-received companies likes Facebook and Twitter, you can expect the blockchain technology to need an equally impactful step before it can achieve worldwide dominance. Going by the recent feel of things, this step seems to be asset tokenization.
What is tokenization?
Asset tokenization is the process of issuing blockchain-based security tokens, in place of real tradable assets. These securities are created through the usual Initial Coin Offerings (ICOs) but often referred to as Security Token Offerings (STOs) Security Token Offerings (STOs) to distinguish them from other types of ICOs, whose tokens can be different from securities. An STO creates a digital representation of an asset, such as a share in a company, oil & gas, gold, diamonds, participation in an investment fund, or ownership of real estate. These tokens can then be traded on a cryptoasset market.
Cryptoassets in the financial industry
The financial sector seems to be gearing up for a new “token economy” which offers the potential for a fairer and more efficient trading model by extensively reducing the friction involved in creating, buying and selling securities. Currently, more than 2200 publicly traded cryptoassets are listed on Coinmarketcap, and the Ethereum main network has over 175,000 token contracts representing existing digital or physical assets. Below are some of the reasons why the tokenization of assets is a gamechanger for finance.
1. Enhanced asset liquidity
Today, approximately a third of the world’s wealth is in cash while the rest of it is held in typically illiquid assets. By converting the ownership or value of these assets into crypto tokens, individuals and businesses can trade them on the digital markets of their choice. Intangible assets like copyrights, patents and carbon credits, as well as real-world, non-fungible properties such as real estate, oil & gas and art can be converted into fractions of value that are easily and securely transferable on the blockchain.
Say, for example, you owned the physical painting of Mona Lisa. The only physical unit of trade is the full painting and nothing less. If you tokenize the painting, however, you create a unique cryptoasset token that represents the Mona Lisa, which can be broken down into sub-tokens and sold individually like shares of the original painting. With tokenization, the distribution of such assets is made unimaginably easier.
2. Faster and cheaper transactions
Cryptoasset exchanges are governed by blockchain-based smart contracts, which means they are almost entirely automated. Smart contracts are autonomous executable pieces of code that act only when specific conditions, such as consent from both transacting parties, are met. This automation can potentially reduce the administrative burden involved in buying and selling assets.
Rather than including brokers and lawyers when selling your real estate property, you could simply convert it into a cryptoasset token and transfer it directly to a prospective seller in exchange for cryptocurrency. Eliminating traditional intermediaries not only promises faster value transfer, but also lower transaction fees.
3. Transparent and trustworthy trading
Security tokens have the token-holder's right and legal responsibilities embedded onto them, along with an immutable record of ownership. This data is open for the blockchain participants to see and verify and can be examined to know who traders are dealing with and what their rights are, as well as all the previous owners of the token.
By making use of the blockchain, cryptoasset tokenization increases traceability, enforceability and accountability, even among strangers, while averting the costs of assuring trust in traditionally bureaucratic financial systems.
4. Free markets
Tokenization can open up asset trading to a much broader audience, thanks to reduced minimum requirements of investment capital and periods. Cryptoassets are highly divisible, which means investors can purchase the smallest percentages they can afford and hold it for whatever period they want. Rather than requiring you to tie down a large sum of money for an extended duration, tokenization allows you to invest $50 in a piece of appreciating property, which you can easily sell at your discretion.
This freedom to choose when and where to invest could open up a whole new era of personalized and customized investing, vastly increasing global trade volumes.
PDX- A New Store of Value
Estimates of global wealth exceed $400 trillion. The migration of some interests in these assets into digital currency through blockchain-enabled applications represents an enormous opportunity for early supporters of PDX to help create, develop and profit from the development of what is intended to become a preeminent globally accepted digital currency.
PDX use cases as a “disruptive” and a true global utility coin that is developing apps to make it extremely easy to make in-store purchases with retailers, as well as online purchases and bill payments, so that it’s as easy as using cash or a visa card today.
PDX has been created as a digital token on the Ethereum blockchain via the ERC20 protocol. Each PDX token issued into circulation will be supported initially by independently certified oil and gas reserves, or oil equivalent. PDX will partner with leading globally recognized institutions (audit, and petroleum engineering) in order to cost-effectively and securely build, audit, and monitor the pool of oil reserves benefiting all PDX holders.
Once a PDX Coin token has been issued, it can be held, transferred or exchanged, subject to applicable law, either in whole or in part, in the same manner as Bitcoin, Ether or other digital currencies. At any given time in its first 10 years, PDX’s underlying reserve barrels of oil will approximate not less than the number of PDX tokens in circulation. Over time this will rebalance increasingly to the equivalent values in green energy and renewable energy assets. This simple configuration most easily supports a reliable audit of oil and gas reserves; a process which is fundamental to maintaining the price parity between the PDX in circulation and the underlying energy reserves and assets.
PDX Coin tokens will be nominally hard capped at one billion tokens (before any future splits or forks). There can theoretically never be more than this amount on issue, subject to certain algorithmically-dictated conditions or limitations.
These characteristics, together with a focus on transparency and regulatory compliance, position PDX Coin to be a top safe haven digital currency capable of appealing to investors and consumers worldwide, regardless of size or sophistication.
Are you ready for tokenization?
From buildings, oil & gas, gold to art, the way investors trade assets is about to change fundamentally, thanks to cryptoasset tokenization. Challenges like few regulations and unenforced compliance, unestablished standards for integration with existing platforms, and cyber-insecurity need overcoming before the token economy can take off, but with traditional players getting increasingly interested with tokenization, it is only a matter of time before viable solutions are developed. Financial institutions have the opportunity to meet the new requirements of a token economy, such as providing platforms for storing tokens, or acting as intermediaries when blockchain alone is not enough to establish trust.
Industry participants that are not agile and opportunistic enough to rise to the challenge are bound to struggle in the impending fierce competition of an exciting new tokenized world.