Converting asset ownership into blockchain-based tokens.

Ritu77

Settlement Efficiency: Blockchain transactions settle almost instantly and can be designed with payment condition restrictions for asset exchanges, reducing the risk of settlement failures.

Programmability: Tokenized assets integrated into applications can enable additional functionalities. For example, this may include transferring conditionally off-chain information (such as compliance approvals) or using tokens as collateral in decentralized lending platforms.

Accessibility: Like the internet itself, blockchain is not bound by national borders. Therefore, tokenizing assets may grant access to the world's best capital markets for investors from more countries. Blockchain can also facilitate access to new asset types by fragmenting assets, providing new investment opportunities to more people.

Cost Reduction: By increasing automation and reducing the role of intermediaries, tokenized assets may lower issuers' costs, including lower underwriting fees and interest rates.

Researchers at the Bank for International Settlements (BIS) have defined a tokenization "continuum" to consider how this process may impact specific markets. On one end are markets that still require a significant amount of manual workflow, such as real estate or syndicated loans. These assets may be challenging to tokenize, but the process could bring substantial efficiency improvements. On the other end are many other markets where current electronic ledger systems are quite efficient, such as publicly traded stocks, mutual funds, and exchange-listed derivatives. These assets may be easier to tokenize, but the efficiency gains offered by the process are limited. The most suitable candidate assets for tokenization may lie somewhere in the middle of BIS's continuum: those benefiting from slightly better electronic records and smart contract functionality. This list may include many types of fixed-income securities, such as government bonds and structured products. However, as further discussed below, the greatest benefits may come from moving all assets onto a universal global platform.

The first application of tokenization technology is finding stablecoins that fit the product market, which tokenize the simplest and most liquid assets: cash. The market value of stablecoins has now reached $158 billion, led by Tether (USDT) and USDC. Stablecoins come in different forms, but USDT and USDC can be considered fiat-backed stablecoins. They operate similarly to other tokenized assets: traditional assets are custodied off-chain, while tokenized representations can be held in blockchain wallets. This digital cash, existing in tokenized form, can be used for payments, benefiting from the potential of blockchain for nearly instant settlement, lower costs, and interaction with smart contracts.

Following stablecoins, the next widely adopted tokenized asset is gold. The two largest projects, Tether Gold (XAUt) and PAX Gold (PAXG), have a total market value of about $1 billion. Although there are many ways to invest in gold, these products offer blockchain functionalities, including the ability to transfer risk outside traditional trading hours, such as weekends. This feature demonstrated its practicality during recent geopolitical tensions in the Middle East: when other markets were closed, XAUt and PAXG experienced significant fluctuations during the week of April 13-14.

Sona59

There are quite a lot of benefits to various methods as well.

Samiksha

Actually, each method has its own merits. This is something to pay attention to as well.