Asset Tokenization & its Applications

What is asset tokenization?

Asset tokenization is the process of creating a digital token to represent an asset on a blockchain. By owning the token, it represents ownership of the tradable asset, and these tokens may be traded between buyers and sellers. Tokenization exists as a bridge between reality and the digital world, as assets are now recognised digitally as a blockchain token.

With a new digital presence, tokenized assets present numerous opportunities in its applications. There are three main advantages in tokenizing an asset:

1. Operational Efficiency

Being on a blockchain enables transaction, and it allows token ownership to be transferred seamlessly without the need to validate with a third party institution. Transaction settlement between buyers and sellers are automated, reducing the time taken for a trade clearance. Furthermore, it avoids the hefty fees which these third party institution charges, making transactions much cheaper.

2. Asset Fractionality

Tokenization increases liquidity of an asset as they can be fractionalized. A varying amount of token may be issued to represent an asset, allowing for the asset to be split equally in smaller portions. For example, a real estate property may be tokenized with several tokens distributed, each representing an equal stake in ownership of the asset. When an asset class exists in portions, it improves accessibility for investors, as a lower minimum capital is required for a smaller stake.

3. Transparency

With blockchain, transparency is guaranteed as transactions are recorded on the public ledger. This property is inherited by all tokenized assets, enabling traceability and identification of associate chain of ownership to the asset. This allows for asset accountability, as users would attain visibility on transaction history of the asset.

What can be done with tokenized assets?

Tokenized assets allows for the transfer of both information and asset value in an efficient, transparent and verified manner. Therefore, they are mainly utilised by financial institutions to facilitate trade of securities, or adopted by industries to optimise supply chains.

Investors in traditional securities may face accessibility issues, as investments are often portrayed as a privilege of the mass affluent. Traditional assets are able to leverage on tokenization to gain wider market accessibility through fractionalising, as less funding is required to participate in an investment. With tokenized assets and fractional ownership, the securities market has a lower barrier of entry economically and digitally.

Aside from investments, tokenized assets are also adopted by industries for its utility in tracking and identification along the value chain. Tokens may just replace the use of barcodes, while delivery packages can be tracked from first to last mile. In supply chain, tokenization of assets ensures produce reach the right person at the right place and time.

What can be tokenized?

In recent years, various forms of assets are being tokenized in order to manage them digitally. Tokenization can turn almost any asset, either real or virtual, into a token. From real estate properties to treasury bonds, anything can exist as a tokenized asset on the public ledger. Industries have since tokenized currencies, barrels of oil, and even art pieces.

Fungible Tokens

A common application of tokenization would be to issue tokens which are fungible in nature, where each unit of commodity is replaceable with another identical item. Assets of fungible nature usually exist in abundance, such as gold or oil, and are mutually interchangeable. For instance, a unit kilogram of gold may be traded for another kilogram of gold. Asset tokenization of fungible nature are widely adopted among institutions to better facilitate trading or managing of assets.

Non Fungible Tokens

For unique real world assets, non-fungible tokens (NTFs) may be issued instead. NFTs are a form of tokenization, and tokens issued to represent ownership of irreplaceable and non-interchangeable assets. The token value is determined by market demand and scarcity, and traders are free to trade NFTs with cryptocurrencies or tokens running on the same blockchain network. The NFT market is not to be undermined by investors, as it has tripled in value in 2020, reaching more than $250 Million. Furthermore, the first quarter of 2021 saw NFT sales exceeding $2 Billion.

Examples of NFTs

Almost any assets which display unique attributes can be tokenized as a NFT, as no two parcels are the same. Assets come in all forms, both tangible and intangible, virtual or in the real world. For instance, assets such as an art piece or real estate property may be tokenized as there are no duplicates, representing ownership to the physical property.

Digital assets such as digital art see a growing trend in asset tokenization, as creators may easily tokenize and distribute original works for their supporters. Perhaps the most famous NFT which sparked the frenzy was when Twitter co-founder Jack Dorsey sold his first ever tweet for $2.9M in early 2021. There are even “digital pets” created on blockchain, giving digital lifeform a unique and irreplaceable identity. Cryptokitties is a virtual pet NFT which allows users to buy, sell and breed “digital cats” on the platform. The possibilities of NFTs are endless, and are only bounded by our creativity.

There are several marketplaces which support the trades of NFTs. One example is OpenSea, the largest NFT marketplace offering trades for almost anything. Users are also able to tokenize their asset on the platform for free, and host trades on the platform. The NFT market remains highly speculative, and it is up to market forces to determine the value of the tokenized asset.

How does NFT prove ownership?

There are several concerns regarding NFT representation of ownership, and it is especially true for digital assets. From digital art to soundtracks, the rapid development of technological skills allows for users to replicate or even duplicate digital assets. In reality, digital assets may be easily duplicated – a screengrab of an artwork could potentially pass off as the original work, making it difficult to verify its authenticity.

With asset tokenization, each asset token is minted with a unique identifier. Each token has an owner and this information is easily verifiable on the blockchain network. For example. ETH based NFTs can be bought and sold at any Ethereum based NFT market, and are live on the public ledger. With the unique token, owning the verifiable token is as valuable as the market determines it to be, and no one can manipulate it in any way.

Also, it is interesting to note that NFTs may also be fractionalised to allow multiple ownership to an asset. Emerging as Fractional Non Fungible Tokens (F-NFTs), they are unique assets fractionalised into several tokens and may be distributed. While it provides accessibility to more investors, such F-NFTs may raise flags with financial regulators, as they face potential intellectual property and rights of publicity issues. With unclear regulatory legislations in sight, it is best to manage a NFT as a whole, as they have clear ownership and management of representation.

Ownership Transfer of NFTs

When an asset is tokenised, the cryptographic link between the token and the asset is established, and proof of ownership is to be acknowledged by both parties. This means that the asset ownership is officially transferred when a buyer purchases an NFT. There are several use cases for NFTs to be recognised as proof of ownership, as they provide swift and seamless validation of transfers. This is especially impactful in supply chains where assets are being transferred at each stage of delivery, and there is a need to validate the transfers several times. Traditionally, signed hard copies by both parties are required to validate the transfer, and it may result in delay of information transfer. Using NFTs, cargo ownerships are transferred online, and cargo movements are tracked digitally to show real time updates. This reduces significant costs in offline validations, and brings efficiencies for logistics documentation via a blockchain solution.

Tokenization in Supply Chain

Many industries adopt NFTs to represent products, as tokenization of products allow for value chain optimisation. NFTs enable more efficient product identification in the end to end process, and producers could identify potential fraudulent use. Furthermore, NFTs give producers the collateral management rights of the products to ensure trade obligations are fulfilled. Commodity producers and manufacturers can verify their correctness on the public ledger through NFTs asset tokenization, as they serve as a blockchain solution for supply chain.

A tokenized supply chain has several benefits over the traditional counterpart:

1. Issuance

In the traditional supply chain, securities are issued through regulated financial institutions, such as investment banks. This method of issuance is restrictive compared to a tokenized security, which may be issued by individuals and companies. Smart contracts, for instance DeFi, are utilised to tokenize an asset and issue tokens digitally.

2. Distribution

Authorised investors would receive securities through issuing institutions in a traditional supply chain, limiting market accessibility as only a small group are entitled. Tokenized supply chain does not have this issue as tokens are distributed without intermediaries, and market access is only limited by regulations.

3. Trading & Settlement

The stock exchange facilitates trading of securities on fixed hours, and transactions are validated by financial institutes. This process is inefficient as it may take days to validate trade obligations, and securities are only exchanged after. In tokenization, trades are validated by blockchain instantaneously with transparency, and do not require third party institutions. Furthermore, it is not limited to only exchange platforms as peer to peer transactions are enabled.

Asset Tokenization Application

Companies are able to use NFTs blockchain solution for supply chain to provide services. ShuttleOne is a fintech company which leverages on NFTs as collateralised assets to provide financial services to businesses. These services include business loans and cross border remittances, allowing companies to access financial services efficiently. Furthermore, only businesses which has collateralized their assets can access ShuttleOne’s financing support. With asset tokenization, companies can tokenize commodities and cargo goods in the real world to secure loans for their businesses.

The ShuttleOne network serves government-related entities and e-commerce giants through its trusted blockchain, and has since disbursed close to $3.5 Million of credit to businesses across Asia. By collateralizing assets via tokenization, it provides a peace of mind as a default in the business loan could result in tokenized asset liquidation.

How ShuttleOne facilitates asset tokenization for financial services

Businesses and merchants across Asia can tokenize their assets and unlock liquidity for their assets. With ShuttleOne, one of the leading financial services platforms powered by ShuttleOne, businesses can easily tokenize their assets and receive capital financing within minutes, leveraging blockchain technology to their benefits.

So how does ShuttleOne tokenize an asset in order to provide collateralized loans?

First, users create a loan application on the ShuttleOne’s partner portal. Here, applicants are able to tokenize their assets, including commodities and supply chain assets, and use them as collateral for their loan application.

To apply for a loan on ShuttleOne, merchants can simply upload their Business Registration, Invoice and Bank Statement. The system will based on the document submitted on the application to offer a credit score and loan approval

After submitting the loan details, the blockchain transaction hash would appear, indicating that a loan has been sent for approval. The transaction hash may be viewed publicly and the application is immutable.

Within 30 minutes of submission, transaction hashes for both legal and audit would be available as well. The credit score and credit amount would be updated, and a status update would be provided.

Within 30 minutes of submission for loans on ShuttleOne, transaction hashes for both legal and audit would be available as well. The credit score and credit amount would be updated, and a status update would be provided.

Once business owners would like to start a loan period, remittance is available and they would be allowed to cash out to any bank accounts under ACH, SEPA and SWIFT.

ShuttleOne would facilitate the payment process and disburse the loan amount to users, in this case, merchants across the region.

For business expenses that need to be paid to vendor, users can direct ShuttleOne to disburse the payment directly to the vendors’ bank account, saving time and expenses to transfer between banks. Financing are disbursed in digital currencies so it can be converted to any bank account globally.

Once the loan is approved on ShuttleOne, merchants can easily cash out to their bank account with a simple instruction. For business expenses, merchants can also direct ShuttleOne to pay directly to their vendors

Also, it is easy for applicants to repay their loans. Under the ‘repay’ tab, applicants can select the loan they would like to pay off.

Merchants can easily repay their loans to ShuttleOne in a simple interface. No requirements on digital assets or crypto knowledge.

How to access ShuttleOne Financing services:

ShuttleOne is the next generation of operating system for Finance that allow any B2C, B2B, G2B platform to build and run their native decentralized financial solutions.

Non-blockchain B2C, B2B, B2G platforms can use ShuttleOne’s infrastructure to run fully automated DeFi solutions, connecting liquidity from the global crypto market and financial services accessible to anyone.

At the moment, merchants and businesses can access ShuttleOne financing services via Calista Finance, a trade financing platform that is currently serving cross-border trades and merchants across 60 countries around the world.

Watch the full video demo of CALISTA Finance Powered By ShuttleOne

How to Invest in ShuttleOne

For ShuttleOne to disburse loans, it requires a sufficient liquidity pool to support its decentralized finance network. In a straightforward process, investors who lend crypto to their liquidity pool would receive high interests, earning passive income through their contribution.

Investors may add stablecoins as liquidity to contribute to the ShuttleOne liquidity pool. Investors are not only rewarded with a high 10% APY interest rate, but also additional SZO tokens on top of the interest earned. The ShuttleOne network accepts stablecoins in the form of lending DAI, USDC and USDT. As ShuttleOne takes real world tokenized assets as collateral, they are able to provide a stable interest yield, as loan applicants would be at risk of liquidation should they default on their loan.

As we move forward with digitalisation, new industrial practices are no longer out of our reach and are being adopted rapidly. In traditional finance, we are often limited to what our local financial institutions can provide, and also at the cost of hefty fees and long waiting

periods. Financial services used to be for the privileged, and accessibility has been limited for the underbanked. Enter asset tokenization, where real world assets may be digitised on the blockchain, unleashing a whole new world of opportunities for us to leverage on. The beauty of asset tokenization is that it brings about asset fractionality, operational efficiency and transparency, enabling us to new ways of working.

The above references an opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.

You may also like