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Asset tokenization and securitization open up new ways with the power of blockchain technology. Asset tokenization, a new yet powerful concept, presents an opportunity to bring more funds into circulation and make investments more accessible worldwide.
Blockchain networks allow for the fractionalization and digital trading of real-world assets such as real estate, artwork, or securities through tokenization.
On the other hand, securitization is the process of taking an illiquid asset, or group of assets, and turning them into tradable securities. This is done by pooling similar assets together, such as loans or mortgages, and issuing new financial securities backed by those pooled assets.
So, for example, when a bank issues mortgage-backed securities, it has gathered hundreds of individual mortgages and bundled them into a financial package.
Investors then purchase pieces of this package as securitized assets, giving the bank the capital to issue new loans and giving investors access to the returns from the underlying mortgages.
To sum up, asset tokenization refers to the process of digitally capturing the ownership of a real-world asset on a blockchain using a crypto token. Whereas securitization bundles similar assets together, tokenization individualizes each asset on a blockchain network using crypto tokens.
Tokenizing a building, for example, divides ownership into individual tokens, each of which represents equity or a return from the building.
The same could be true for tokenizing artwork, precious metals, or even operating business assets like intellectual property or vintage automobiles. Smart contracts automate distributions to token holders.
Join us in this blog as we explore core aspects of asset tokenization and securitization while highlighting the key differences between them and more. Let’s continue by looking at some of the examples of asset tokenization vs. securitization!
Some common examples of securitization include mortgage-backed securities (MBS) as well as asset-backed securities (ABS) backed by other assets like auto loans, credit cards, or student debt.
Securitization is essentially possible for any predictable cash flow stream. This allows originators to access funding as investors pour money into the newly created securities.
Additionally, it broadens investment options, as even relatively small investors can invest in a diversified bundle of loans or mortgages. Securitization has played a huge role in the global capital markets for decades.
Companies are tokenizing individual commercial properties, buildings, and developments, opening them up to smaller investors globally. You can check out “Real Estate Tokenization” for more details.
Platforms are tokenizing high-value paintings and sculptures, enabling institutional and individual investment in blue-chip art. NFT assets are great examples of these types of tokenized assets.
Startups are tokenizing ownership of collectible luxury automobiles, from classic Ferraris to antique Rolls Royces.
Token projects offer fractional ownership of stored wines from top vineyards, with crypto tokens entitling holders to future vintages.
Funds are using tokens to represent holdings in companies, startups, and even entire venture capital portfolios.
As you can see, just about any valuable real-world asset is ripe for tokenization, which will only continue to expand financial inclusion.
Tokenization in securities refers to the process of issuing digital tokens on a blockchain to represent ownership in traditional securities like stocks, bonds, or funds. Token trading on digital exchanges enables the fractionalization and increased liquidity of securities.
For example, a company may tokenize its shares of stock by issuing blockchain-based security tokens. Peer-to-peer crypto trading of each token would represent a fraction of the company's equity.
This levels the playing field, as even small investors may be able to invest where minimum stakes were previously too high. Securities tokenization modernizes capital markets.
Regulated security token offerings (STOs) also provide companies with an alternative way to raise funds, from small businesses accessing micro-investing to larger firms tapping global pools of capital.
To summarize the concepts discussed earlier:
Both allow for fractional ownership, greater access through lower minimum investments, and more liquid secondary markets with 24/7 peer-to-peer trading of tokenized assets and securities globally using crypto exchanges. Proper regulation is still evolving, but the opportunities are vast.
A very tangible example of tokenized security would be the initial public offering (IPO) and subsequent stock tokenization of blockchain-focused fintech company OVERSTOCK.COM.
In late 2021, Overstock became the first public company to issue a digital dividend in the form of a security token on its tZERO platform. Existing shareholders received the dividend as tokenized versions of Overstock shares traded on regulated crypto exchanges.
Now, smaller investors worldwide can invest and trade fractions of overstock equity that were previously restricted to major institutional players. This landmark case shows how security tokens can expand access to public markets worldwide.
While similar in certain ways, asset tokenization and securitization differ in their key approaches:
While both aim to fractionalize assets, tokenization seeks greater granularity through individualization on blockchains for more efficient markets, while securitization pools assets conventionally.
EURK, a secure, audited, and 1:1 euro pegged stablecoin built on multiple blockchains, could play a critical role in empowering innovation with reliability and efficiency. As a secure stablecoin and euro stablecoin platform it has reserves in Switzerland to maintain its peg.
You can easily benefit from fast, secure, and easy crypto transactions with EURK euro stablecoin and avoid the risk of volatility that can threaten your crypto investments. EURK is the best euro stablecoin that you can trust for your individual and business needs with a euro stablecoin wallet.
Although people sometimes use the terms tokenized securities and security tokens interchangeably, there are some key differences:
Tokenized securities digitize traditional securities onto blockchain networks, while security tokens are native crypto-assets compliant with securities laws and provide ownership and/or revenue participation tied to an underlying asset.
Both aim to fragment securities for improved global access and liquidity, but security tokens are purpose-built for blockchains from the start.
Asset tokenization and tokenized securities are powerful innovations with massive potential to transform capital markets and financial inclusion worldwide by fractionalizing real assets and traditional securities.
By capturing ownership on distributed ledgers, minimum investments can decrease dramatically while secondary liquidity rises. Entire asset classes may become accessible to average investors.
With strong regulatory frameworks and partnerships between providers and traditional institutions, we may see trillions pour into circulation. Only time will tell how far this technology reaches, but signs point to a very bright future for finance through tokenization.
Secure EUR stablecoins like EURK, which enable the issuance of tokenized stablecoins, also play a key role in supporting tokenized transactions globally. You can upgrade your transactions with EURK stablecoin. Become a partner with EURK today and get started to grow your business!
