What Is Asset Tokenisation, and How Does It Deliver Value for Businesses?
05 Jul, 2023
By Effie Dimitropoulos, Executive General Manager
Asset tokenisation isn’t new, although it has grown popular with blockchain. It essentially means creating or minting digital assets representing ownership in real-world assets. These tokens can be traded almost instantly on exchanges, generating value for their holders.
For example, Joe wants to borrow against his physical piece of land from a DeFi protocol. How does he do it? Joe could mint an NFT on the DeFi network, representing his piece of land, with a permanent record maintained on the blockchain. He can then use the NFT token as collateral for the loan. The loan can be fractionalised to pool several investors and simplify the financing.
With asset tokenisation, businesses can unlock great value and grow their bottom lines. Generally, tokenised assets fall into the categories of security tokens, utility tokens, and stablecoins.
Security tokens, utility tokens, and stablecoins: What’s the difference?
Security tokens, utility tokens, and stablecoins are all forms of tokenisation that can generate value for businesses. As such, a distinction between the three is crucial to understand the kind of value that businesses can attain from them.
Security tokens are the most common and involve the creation of digital assets from fungible and non-fungible assets. These assets include artworks, buildings, businesses, land, bonds, etc. Since security tokens are derived from usually regulated assets, they are complex to issue and face barriers that might have cost and liquidity implications.
Utility tokens are created to serve a specific function, like giving their holders the right of access to a decentralised ecosystem. Users of utility tokens benefit from access rights or usage rather than having freehold or earnings from them.
Stablecoins are digital assets that are a more direct form of tokenisation. These assets are pegged 1:1 to an underlying asset, say the dollar or gold. The pegging enables stablecoins to tokenise the value of the assets backing them automatically. An example is the AUDD stablecoin, pegged to the Australian dollar. By doing so, AUDD tokenises A$, giving the currency a new medium of expression within a digital realm.
Delivering value to businesses through tokenisation: The case for AUDD
Different forms of asset tokenisation can deliver value to businesses by increasing the accessibility of underlying assets to investors, customers, and other stakeholders. Narrowing down to stablecoins and using the example of AUDD, we find significant ways businesses can tap into asset tokenisation.
It is believed that your network is your net worth. The same can be said with asset tokenisation, especially with stablecoins. Tokenisation happens on the blockchain network, delivering all the benefits of a decentralised system to a business. A business that does asset tokenisation enjoys fast, scalable, and secure transactions via blockchain.
For example, AUDD runs on the fast, low-cost, decentralised Stellar and XRP ecosystems, with more networks to follow. Businesses that use the AUDD will enjoy the benefits of a modern payment solution based on the blockchain. Businesses can derive value from these networks, which enable instant transactions in a secure and verifiable manner.
Network leveraging is a crucial asset tokenisation benefit because an entity joins a global list of other anchor organisations operating in the same chain. As such, they can exchange value and build communities of benefit virtually without going through third-party intermediaries.
Asset tokenisation eliminates costly intermediation
In a more traditional finance sense, asset tokenisation involves multiple settlement layers encompassing originators, service providers, payment processors, and many more. When this process moves to the blockchain, it is quicker, less costly, and delivers win-win situations for counterparties. Take the case example of the tokenisation of assets for DeFi financing. Borrowers expedite the process through the public ledger and can pool resources from several investors. By eliminating inefficiency and third parties, borrowers get a cheaper form of financing. Lenders benefit from a tradable asset that also serves as security for the loan while earning interest on their facility. AUDD taps into this power of asset tokenisation to bring valuable outcomes to businesses.
Let’s say Effie – an Australian customer – discovers a captivating NFT artwork being sold by Peter and agrees to purchase it using AUDD. To ensure a secure and verifiable transaction, they opt for an HTLC. Effie creates an HTLC contract specifying the agreed-upon AUDD amount and includes a unique hash value, a time lock, and Peter’s Ethereum wallet address. She generates a secret hash known only to her and shares it with Peter. Peter acknowledges the transaction, generates a corresponding hash lock, and provides Effie with the necessary purchase details. Effie verifies the hash lock and proceeds to send the specified AUDD to Peter’s wallet address, effectively locking the AUDD in the HTLC. Upon receiving the AUDD payment, Peter reveals his secret to Effie. Effie confirms the hash match, and as a result, the AUDD is released to Peter, officially transferring ownership of the NFT to Effie. The HTLC ensures the transaction’s integrity, safeguarding both parties from potential fraudulent behaviour or non-fulfilment of obligations.
Business querying simplified
Just imagine having to exchange emails, documents, and other internal communications relating to an overseas transaction for confirmations and verifications. Unfortunately, this is what businesses today find themselves in without systems that allow remote and virtual querying. Asset tokenisation via blockchain solves the challenge as records are kept and maintained on a public ledger for any-time querying.
For instance, a logistics company in Australia that relies on blockchain for supply chain management can use AUDD as a standardised currency for transactions and record keeping. This eliminates the complexities of dealing with multiple digital currencies and exchange rates. By integrating AUDD into its blockchain operations, the company can easily retrieve transaction data without the need for currency conversions or concerns about price volatility experienced with other assets. This streamlined approach allows the business to focus on analysing the information and leveraging the blockchain’s advantages to optimise its supply chain processes.
Increased asset divisibility and accessibility
Here, I will use the example of share tokenisation. Similar to stock splits in mainstream finance, asset tokenisation can increase the access of the asset class to more investors. Entities can raise finances quicker and open their business to more investors for greater visibility.
Businesses can access a global ecosystem if using a stablecoin like AUDD. They can acquire AUDD via a live Distributor platform, which can be used on Stellar for different use cases. That includes making macro-payments without incurring the transaction costs and limitations associated with traditional payment networks.
Unlocking value in asset tokenisation
Asset tokenisation can be a suitable method for businesses to build value by increasing access and availability of their offerings to investors. New opportunities exist from higher divisibility of assets, network leveraging, and virtual querying through blockchain. The positive impacts of increased efficiency, speed, and cost reductions can, directly and indirectly, contribute to the revenues and bottom lines of the organisation.
AUDD on blockchains like Stellar offers a new way to reimagine asset tokenisation by allowing businesses to experiment with new use cases. Businesses enjoy the benefits of decentralisation, including connecting with on/off-ramp businesses through AUD-AUDD secure contracting.
The information in this blog is
- provided for informational purposes only, without any express or implied warranty of any kind, including warranties of accuracy, completeness, or fitness for any particular purpose;
- not intended to be and does not constitute financial advice, investment advice, trading advice, or any other advice; and
- general in nature and is not specific to you or anyone else.
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