Assets Tokenization: Prospects and Challenges

Abstract

Asset tokenization is about to reshape the world of investment and finance due to its enormous potential for providing customized solutions to those aspiring to be part of a financial ecosystem. Tokenization is the process of transferring large assets into a large number of small tokens of ownership, provided with a unique digital identity and presence in a blockchain with its immutability and interoperability. It is incredibly secure, remarkably liquid, significantly cost-effective, reasonably transparent, easily accessible and very broad in spectrum and scope. It encompasses all financial and real assets, ranging from commodities to securities, real estate, artworks, sports, the corporate sector and even collectibles. It can provide convenient, customized and cost-effective access to anyone in the digital world of blockchain technology. It also removes the role of any intermediary, avoids delays in transferring ownership of assets and subsequently eliminates transaction costs. Due to its immense potential of distributed ledger technology (DLT), it can manage transactions involving huge sums in a transparent and speedy manner. Despite its massive potential, there are some challenges that potential entrants must face, hindering the unleashing of this potential. This chapter attempts to unfold some of the prospects and challenges of asset tokenization which the decentralized financial world of tokenization and its players face, including the complexities associated with the codification and creation of digital tokens, regulatory challenges, fear of entering the universe of virtual reality, a lack of tangible holding of assets, the rapid evolution and development of digital markets, over-coming trust deficits among counterparties, finding appropriate assets and the discovery and integration of demand–supply mechanisms.