🌎Real-World Asset Tokenization

What is it?

Real-world asset tokenization enables financial institutions to bring mainstream financial assets into the digital world. These products have the potential to provide users with the transparency, convenience, and innovation associated with DeFi and can potentially be provided with the security and reliability associated with regulated or responsible financial services.

Tokenized assets make use of blockchain technology. A blockchain is an open, distributed ledger that digitally records transactions in a verifiable and immutable (i.e., permanent) way using cryptography. Cryptography is a method of storing and transmitting data in a particular form so that only those for whom it is intended can read and process it. A blockchain stores transaction data in “blocks” that are cryptographically linked together to form a “chain”, and hence the name “blockchain.” This configuration of distributed databases also means that settlement of trades can be done relatively quickly and potentially at lower cost than previous systems.

Blockchain technology generally operates without a central authority and replicates identical copies of the structured data to a network of nodes that communicate over peer-to-peer protocols. It allows tokenized assets to be accessed on a smartphone or other device in a digital wallet. While the physical asset’s primary function is to store wealth and generally can’t be used to transact, a tokenized asset has the potential to be transacted on various platforms and used similar to a physical currency to purchase goods and services.

There are two types of tokens: fungible tokenized assets that are interchangeable and divisible and nonfungible tokens that aren’t interchangeable as they represent a unique tangible asset like real estate, an antique, or art. Either way, the asset that backs or is otherwise associated with the token is held by a trustee or custodian to protect the physical asset. Once that asset doesn’t exist anymore, like when a commodity is sold or processed, the token is destroyed.