- Types of Asset-backed tokens
- What are the benefits of Asset-backed tokens?
- Steps for creating asset-backed tokens
- Final words
Asset-backed tokens are virtual entitlements whose value is based on tangible assets. With blockchain technology, property owners can tokenize the whole or part of their assets and receive decent compensation. Furthermore, asset-backed tokens have unlocked opportunities for average investors who would not afford high-value assets.
Individuals tokenize tangible holdings to multiply their liquidity. Liquidity denotes how fast an asset can be sold in the market at a rate matching its actual price. For example, shares and bonds’ liquidity is higher than that of real estate. Here, we dive deep into the steps of creating Tokenized assets.
Types of Asset-backed tokens
Before exploring the steps of creating Asset-backed tokens, it’s essential to understand the main types. Here are the four categories of Asset-backed tokens:
- Equity and debt: Tokenizing equity and debt is a crowdfunding technique many early-stage businesses use. The procedure eliminates third parties from the transaction, leading to reduced costs. Creating Asset-backed tokens on the decentralized ledger allows investors to view the liquid virtual representation of a business’s liability and equity.
- Tokenizing commodities: various goods like grains, gold, and coffee can be transformed into tokens. Third-party assessors conduct physical verification of the asset’s real value to boost investor confidence.
- Tokenization of non-fungible soft assets: soft properties are imperceptible and challenging to quantify. The primary forms of non-fungible token investments include Intellectual Property (IP) and virtual asset tokenization. Tokenizing IPs boosts their liquidity and worth.
- Tokenizing of non-fungible hard properties: these are physical properties including real estate and collectibles tokenization.
What are the benefits of Asset-backed tokens?
Asset-backed crypto tokens provide multiple perks to companies and investors. Here are the main benefits of Creating Asset-backed tokens:
Unlocking opportunities for illiquid assets
Standard real estate and fine art assets are illiquid, locking up massive amounts of money. Because of their illiquidity and high value, only a few investors are interested in this category of investments. And this poses challenges in exchanging these assets.
Picture this. You’re marketing a pricey artwork. Only a few buyers can afford the piece and physically keep it. The good news is that tokenizing the artwork introduces the art piece to an expanded audience. An investor in any part of the world can buy and trade the tokenized piece without the requirement to keep it physically. Thus, Creating Asset-backed tokens boost the liquidity of the assets by attracting many potential investors.
Introduction of fractional ownership
The technique digitally breaks down a high-end asset into small tokens, allowing investors to buy the ones they can afford. Many people can participate in wealth development through this method.
Use of Security Token Offerings (STO)
Investing in asset-backed tokens occurs via Security Token Offerings (STO). Unlike ICOs that lack the backing of tangible assets, STOs are asset-backed, just like company stocks. Furthermore, STOs observe stringent financial regulations in the jurisdictions where they’re issued.
STOs offer companies an opportunity to raise capital by tokenizing their existing physical assets. The approach reduces logistical expenses and is relatively faster than an IPO.
Reduction of transaction costs
The current financial system has a series of intermediaries that increase the cost of transactions. Also, transactions move slowly because of a manual process that entails much paperwork. Asset-backed tokens overcome these challenges due to their use of blockchain technology. Blockchain technology automates the process by removing intermediaries from the transaction. Also, the decentralized ledger allows the trading of Tokenized assets via online exchanges.
Decentralized ledgers are global and overcome the limitations of geographical barriers. Thus, investors from all parts of the world can participate and buy your asset-backed tokens via technology. Furthermore, investing in asset-backed tokens is now an attractive option for some institutional investors.
Tokenized assets have multiple capabilities, including
Blockchain technology allows the transfer of Asset-backed tokens directly to the new owner without the involvement of intermediaries. This reduces transaction costs and delivers quick settlements.
Prevention of fraud
When investing in asset backed tokens, investors can track the history of a particular purchase on the distributed ledger technology (DLT). The procedure assists them in understanding the source and ownership attributes of the asset.
Businesses can program their Tokenized assets to meet local and global regulatory requirements.
Use of smart contracts
Digital agreements are programmed to self-execute once parties meet specific conditions, like making payment for the Asset-backed tokens.
Steps for creating asset-backed tokens
Up to this juncture, you understand the types and benefits of Asset-backed tokens. You’re now ready to know how to create and reap the benefits of these assets. Here are the steps to follow:
1. Identify a physical asset
The first step is to identify and evaluate a tangible asset to tokenize. Many options exist, such as a real object, collectibles, IP, or the whole business. Once you pick the investment, you should audit it to determine its value.
2. Select a token
After identifying the asset to tokenize, the next step is to choose a suitable token, such as utility and STOs. Although multiple standards exist, many people prefer to tokenize their physical assets via NFTs.
3. Understand applicable regulations
Before deploying your token, you need to study relevant laws related to your token. You should also consider global legal requirements for token issuance and distribution. This is critical when targeting a global audience.
4. Develop a tokenomics framework
The tokenomics model helps you to define the total supply of your tokens, supply & demand attributes, token price, and the entitlements related to the Asset-backed tokens.
5. Choose a blockchain network.
You must pick a tokenization platform matching your token standards and the overall business requirements. There are many platforms in the market. So, it would help if you had background research to determine the optimal ones.
6. Create digital contracts
Once you’re through with the initial stages, you’ll be ready to create innovative contracts. The smart contract will program the behavior of your Asset-backed tokens and digitize compliance requirements. However, making smart contracts for your tokenized assets requires the help of an experienced developer. Such a programmer has the skills and tools to create flawless contracts.
7. Create an asset management app
An asset management app is a blockchain-based vault that stores the tokenized assets for issuers and investors.
8. Token distribution
The final step is issuing and listing the tokens. Blockchain network will oversee the issuing process, which can take place in-house or in secondary markets.
Asset backed crypto tokens have become a popular technique of increasing the liquidity of high-value properties. The method has multiple advantages for both asset owners and investors. The tokenization of assets allows businesses to sell their assets quickly at a valid market rate. Also, asset owners can fractionalize their tokens and sell them to various investors, including high-end and average ones. Here, we’ve explored the critical steps of tokenizing your assets.