The world is changing, and traditional financial institutions are under pressure. They’re fighting to keep up with new technologies, like blockchain and tokenization, that are threatening to disrupt their industry.
What is tokenization? Simply put, it is the process of replacing sensitive data with non-sensitive tokens. In the world of finance, this is a critical step in the move to a more secure and efficient future.
Tokenization has been used for years in the credit card industry. Every time you make a purchase, the credit card company replaces your account number with a unique token. This token can be used only once, and it is impossible to connect it with your original account number.
This process is also known as “hashing” or “cryptography.” In both cases, the goal is to replace sensitive data with an unreadable token that can be used for identification purposes.
What can we tokenize?
Examples of tokenized assets include real estate, securities, fine art, collectibles, and other physical assets.
Tokenization is a relatively new technology. The concept of tokenizing an asset is not a new idea.
Why is asset tokenization important?
Asset tokenization enables businesses to raise capital from the vast and innovative crypto community. It helps investors to create and own their own digital asset that represents a financial instrument. It also creates a new class of financial instruments with traditional securities. The advantage? Tokens can be programmed through smart contracts, enabling vast possibilities of democratization, automation and cost reduction.
The benefits of tokenized securities
How it’s revolutionizing the financial industry ?
how tokenization can benefit financial institutions ?
There are many reasons why people and businesses are adopting tokenization. Here are just a few:
– Speeding up the time-to-market of a new security.
– Giving access to the security to a greater number of financial institutions.
– Enabling innovative new products, like secondary markets for high-flying assets.
– Enabling cheaper, more efficient issuance of securities and the associated rights.
– More efficient access to financing.
– More efficient custody and settlement.
– Removing the need for a centralized intermediary, or clearing house.
What are the problems with conventional securities?
In this era of unprecedented global financial volatility, conventional securities have become too centralized and too slow to adapt to market changes.
– Legacy financial institutions are slow to adapt to disruptive technologies, like blockchain.
– The centralized clearing houses that track ownership and trade securities are slow to adapt to new technologies, like a blockchain.
Reshaping the financial system
Financiers are reshaping the financial system, and reshaping themselves.
The financial crisis has exposed many of the shortcomings of the current financial system. It has also highlighted the need for more market flexibility and innovation.
The traditional model of banks as intermediaries has been replaced by a more complex network of financial institutions, which includes the advent of structured products, futures, and derivatives.
Futures contracts, for example, are a type of derivative, and their emergence has prompted a new wave of innovations. The market for energy, for instance, has been revolutionised by the advent of the natural gas futures contracts.
The energy industry has undergone a huge change since the 1970s, when natural gas was a relatively expensive, dirty and scarce commodity.
Today, natural gas is a cheap, abundant, and clean fuel.
Equity trading at the forefront of blockchain
The fast-growing start-up scene in the cryptocurrency and blockchain space is making waves in the financial world. And new start-ups are joining the race to become the next Google, Facebook or Amazon.
One of the most promising innovations is digital currencies, which are becoming ever more popular and valued. This is why it is not surprising that one of the fastest growing start-ups in the world, the Chicago based company Circle, has chosen to develop its own digital currency to enable frictionless transactions across the financial system.…Circle’s mission is to simplify the world of money, by providing a universal financial service that is simple, safe, scalable and affordable. It offers a new payment method that is secure, frictionless and inexpensive…Circle’s innovative blockchain-based cryptocurrency circlyoung, offering a cheaper, faster and safer way to send money to anyone else in the world.
There are some business reasons for applying tokenization ideas to equity trading. Public equity markets have long been in the cryptocurrency program, so they already have prototype software showing how to add cryptocurrency like Bitcoin to smart contract databases. The compelling reason is this: Equity is already partially dematerialized. The trading takes place in a database replicated across multiple distributed computer servers, and the only thing that’s not programmable is the rulebook. So, a transaction record can easily be added. It could happen in waves. Third, the tech adoption rate is high. It would also boost rates (an advantage), as tokens would be tied
Tokenizing post-trading equity should become widespread, facilitated by harmonized regulations; that is, the token would now represent a fixed proportion of the underlying, and not simply the spot price. In this scenario, our model shows average returns would improve for the average investor, finishing up at +4.6
What the future looks like
Now is the time to act. Tokens appear to be the fast-growing segment of cryptocurrencies, and they are not predicted to go away. The examples broached in this post should prompt investors to rethink the risks associated with owning cryptocurrencies, and the risks of owning them are likely to increase, given the slowdown in prices around past highs.
We recommend primary business stakeholders evaluate four steps to determine the impact of tokenization in specific cases. They include (1)
Evaluating the implications for the business model (2) Defining and opting for a target vision for each business line and activity related to it (3) Developing a capabilities roadmap and constructing a capabilities roadmap to support the desired business model. (4) Designing modus
In theory, platform-specific digital tokens can significantly disrupt many traditional players in the asset management marketplace, and if applied cooperatively, they can revolutionize access. In reality, the road to digital tokenization will be heavily dependent on incremental evolution and collaboration with existing trusted ecosystem players.
Enablers of ILPs in Kenya encourage easy access to credit by leveraging efficiency gains associated with short-changing traditional bank systems, which are seemingly removed from the financial safety net on which the operations rely. In the Read Less
Obvious source of inspiration: “Mama Africa”. Amerika obsessed with racial identity, predictable left-wing views, etc.
Literary: utter rubbish.
Sexuality: theme not germane or agreeable to your patrons meaning (white people!). For GER- and Afrika alike (not looking so negative now!)
Food : if too broad and ulterior motives, might get totally rejected
How does regulation play a role in the cryptocurrency market? Like other asset classes, when tokens are offered as a security, they require a license to sell. Some players have been in legal hot water when they attempt to trade the instrument without the proper license. However, traditional financial institutions are generally able to offer multiple asset class types. This can allow banks and brokerages to offer a fragmented approach to financial services, which may or may not comply with the individual regulatory requirements for different asset classes
Exchanging or converting Wall Street assets or assets in an exchange brings together different demographic and geographic parts, sometimes bringing together long-distance relationships. It is helpful for regulators to make certain that digital assets are managed professionally. Custodian services that are regulated for traditional financial services should be regulated for digital assets.
Interested with that topics ? just follow us on twitter to get our latest news or subscribe to our newsletter