Tokenization of material assets will allow the emergence of a new financial system

The technology is very simple. Blockchain introduces trust, automation and accountability in this system and an algorithm determines all the characteristics of the token such as its value, as well as how many tokens are created, what denominations they allow, how the tokens are spent and under what name and address it can be used.

To understand the contribution of tokenization, it is necessary to have a global vision that connects the physical world and the digital world in which objects can be copied and duplicated without additional effort. The boundaries between real images and fictional images are blurred.

The above infographic proposed by Prof. Dr. Tim Weingärtner puts into perspective the advantages of this global vision that connects the physical world and the digital world:

  • The “Internet of Things” (IoT) provides the ability to recognize and track physical objects. IoT represents the senses of the digital world.
  • Robots, drones and other manipulators enable intervention in the physical world. They represent the enablers of the digital world.
  • “Artificial intelligence” (AI) in the form of machine learning, computer vision, speech recognition, speech processing or optimization helps to understand objects and processes in the physical world. Autonomous decisions can be made. Thus, AI represents the brain of the digital world.
  • The storage of large amounts of data thanks to “Big Data” and therefore the possibility of storing all information for the long term is ultimately the memory of the digital world.
  • Tokenization facilitates exchanges making it more fluid.

Benefits of tokenization

Tokens will play a fundamental role in everything related to the exchange of value and the representation of rights in the physical world. For example, deeds, titles and certificates are all traditional versions of a token. A deed to a home represents ownership of that home. The token refers to the native digital asset which represents the actual asset itself.

The advantages of tokenization are:

  • Sharing
    • Assets such as real estate have a high barrier to entry due to the large initial capital required. Fractionation of these assets democratizes access for retail investors and small investors.
    • Asset tokenization makes the sale of an asset due to the ability to purchase
  • Automation through smart contracts
    • Smart contracts can automate steps such as compliance, document verification, trading and storage.
    • Using smart contracts, dividends and other cash flows can be paid programmatically when due.
  • profitability
    • Costs can be significantly reduced by eliminating some intermediaries and increasing the efficiency of the process.
  • Fastest resolution time
    • Smart contracts triggered by predefined parameters can perform transactions instantly.
    • Tokenization expands the range of collateral beyond traditional assets by breaking into new asset classes, which will significantly increase the options available to market participants.
  • Fraud mitigation
    • By using immutable blockchain databases, risk is mitigated.

Tokenization mainly concerns assets that are not yet traded electronically, for example artworks, exotic collections and assets that require increased transparency in payments and data flows to improve their liquidity and “tradability”.

Example of NFTs

NFTs are different from cryptocurrencies because they represent a single or non-fungible asset. For example, ownership of NFTs, such as works of art, can be established and proven because NFTs are not fungible. Although copies of the work may exist, the original can always be identified and its ownership verified by registration on the blockchain.

Smart contracts allow artists to receive a royalty for their work whenever the work is sold. Since the blockchain associated with an NFT job must be updated with each transfer of ownership, the contract will be activated whenever the hand of the job changes.

Selling real estate NFT simply involves adding the record of sale to the property blockchain, which provides all the necessary legal documents. Not only do NFTs help authenticate identities in a way that is essential in environments such as online healthcare and online education, but NFTs can also be used in more casual environments to enhance the avatars used to represent people on online platforms.

The example of the Tel Aviv Stock Exchange

The Tel Aviv Stock Exchange (TASE) uses blockchain technology, smart contracts as well as tokenization to reduce inherent costs, improve process security and also mitigate the various risks associated with this type of securities.

The aim was for the stock exchange to become a central economic player in the Israeli capital market. The result: the profit margin of the Tel Aviv Stock Exchange doubled, increasing from 9% to 25% in the span of 5 years. Its turnover has also marked a significant increase, marking an annual increase of 7.5% in the same period.

Example of contribution of tokens in real estate

Tokenization has the potential to provide a financing alternative by allocating buildings their own tokens, which form part of all or part of the asset’s ownership or debt. It is also likely that we will see an increase in real estate investment funds that issue land instead of shares.

Each token is really comparable to a digitized share that contains all the property rights associated with a share. Where the classic real estate transaction as part of a rental investment takes between three and six months, regardless of whether or not there is a loan, the land transaction is done with one click.

A smart contract has the potential to transfer ownership instantly and securely, without the need for intermediaries (eg escrow agents, brokers) in a transaction.

Example of tokenization of loyalty programs

A customer collects ten, twenty or more loyalty cards from different businesses or brands. Often they are not used. That is why technological solutions based on the Wallet principle – several loyalty cards in a special collecting application – are becoming more and more widespread, adding the possibility of payment with a smartphone. Many brands manage their loyalty programs in particular on the basis of their mobile application, thus avoiding their customers from carrying around stacks of plastic cards.

Implementing tokenization will transform loyalty programs.

  • Cost reduction
    • Blockchain-based smart contracts can enable secure, traceable and transparent transactions, reducing the costs associated with errors and fraud
    • Using smart contract solutions, a blockchain-based loyalty program can significantly reduce its management costs
  • design
    • For loyalty program providers, tokenizing loyalty points makes them unique, traceable and fraud-resistant.
    • For customers, it provides a single digital wallet platform to manage multiple membership programs.
    • Metacard offers Giftverse, an NFT gift experience management system to help brands, creators and event organizers connect with new audiences, increase sales, increase brand awareness and build dedicated communities.
  • Application
    • Tokenization provides a clear understanding of loyalty points and ease of redemption of these points
    • Blockchain allows many independent participants to participate in a single market to exchange the value of prices offered to customers.
    • Cryptographic tokens can define complex and stable sequences and combinations of interactions between participants to achieve a single result.
    • The possibilities for formulating mechanisms and rules are limitless. and easily customizable and, above all, not subject to manipulation and abuse.
  • Customer engagement
    • Providers can connect customers with more service providers to provide them with an improved customer experience.
    • Clients benefit from increased trading opportunities with near-real-time capabilities.
  • Program management
    • Suppliers receive transparent reporting and tracking while gaining insight into customer behaviors.
    • Transparent program management reduces loss of points through expiration or customer fraud.