The tokenization of material assets will allow for the emergence of a new financial system

The technology is very simple. Blockchain introduces trust, automation and accountability into this system and an algorithm defines all characteristics of the token such as its value, how and how many tokens are created, what denominations they allow, how the tokens are spent and under what name and address they can be used.

To understand the contribution of tokenization, it is necessary to have a global vision that combines the physical world and the digital world where objects can be copied and duplicated without any further efforts. The lines between real images and fictitious images are blurred.

The above infographic by Prof. Dr. Tim Weingärtner puts into perspective the benefits of this global vision that combines the physical and digital worlds:

  • The “Internet of Things” (IoT) offers the ability to recognize and track physical objects. The IoT represents the senses of the digital world.
  • Robots, drones, and other manipulators allow for intervention in the physical world. They represent the actuators of the digital world.
  • “Artificial intelligence” (AI) in the form of machine learning, computer vision, speech recognition, speech processing, or optimization helps to understand objects and processes in the physical world. You can make your own decisions. Artificial intelligence therefore represents the brain of the digital world.
  • Storing large amounts of data thanks to “Big Data” and thus being able to keep all information in the long term is ultimately the memory of the digital world.
  • Tokenization facilitates exchanges by making them more fluid.

The benefits of tokenization

Tokens will play a fundamental role in everything related to the exchange of value and the representation of rights in the physical world. For example, deeds, titles, and certificates are all traditional versions of a token. A title deed to a home represents ownership of that home. The token refers to the digital native asset that represents the asset itself.

The benefits of tokenization are:

  • Split
    • Businesses such as real estate have a high barrier to entry due to the high start-up capital required. The splitting of these assets democratizes access for retail investors and small investors.
    • Asset tokenization makes the sale of an asset into the ability to buy
  • Automation through smart contracts
    • Smart contracts can automate steps like compliance, document verification, trade, and escrow.
    • Using smart contracts, dividends and other cash flows can be paid programmatically upon maturity.
  • Profitability
    • Costs can be significantly reduced by eliminating some intermediaries and increasing the efficiency of the process.
  • Faster settlement times
    • Smart contracts triggered by predefined parameters can transact instantly.
    • Tokenization expands the range of collateral beyond traditional assets by splitting them into new asset classes, which will significantly increase the options available to market participants.
  • Fraud Mitigation
    • By using immutable blockchain databases, the risk is mitigated.

Tokenisation mainly concerns goods that are not yet traded electronically, for example works of art, exotic collectibles and goods that require greater transparency in payments and data flows in order to improve their liquidity and “tradability” .

NFT example

NFTs are different from cryptocurrencies because they represent a single or non-fungible asset. For example, ownership of NFTs, such as works of art, can be established and authenticated because NFTs are non-fungible. While copies of the work may exist, the original can always be identified and its ownership verified by recording in the blockchain.

Smart contracts allow artists to receive a royalty on their work whenever the work is sold. Since the blockchain associated with an NFT work must be updated with each change of ownership, the contract will be activated with each change of hand of the work.

Selling the real estate NFT simply involves adding the record of the sale to the property’s blockchain, which secures all the appropriate legal documents. Not only do NFTs help authenticate identities in a way that is essential in contexts such as online healthcare and online education, but NFTs can also be used in a more informal setting to enhance the avatars used to represent people on online platforms.

The example of the Tel-Aviv Stock Exchange

The Tel Aviv Stock Exchange (TASE) uses blockchain technology, smart contracts, and tokenization to reduce intrinsic costs, improve process security, and also mitigate the various risks associated with these types of securities.

The goal was to make the stock exchange a central economic player in Israel’s capital market. Result: The Tel Aviv Stock Exchange’s profit margin more than doubled from 9% to 25% in 5 years. Its revenue also increased significantly, posting an annual increase of 7.5% over the same period.

Example of token contribution to real estate

Tokenization has the potential to provide a financing alternative by allocating buildings their own tokens, which constitute fractions of all or part of the asset’s ownership or debt. We are also likely to see an increase in real estate investment trusts issuing tokens instead of shares.

Each token is in fact comparable to a digitized share containing all the property rights associated with a share. Where the classic real estate transaction as part of a rental investment takes three to six months, with or without a loan, the token transaction is done in one click.

A smart contract has the potential to transfer ownership instantly and securely, without the need for intermediaries (e.g. escrow agents, brokers) in a transaction.

Example of tokenization of loyalty programs

A customer accumulates ten, twenty or more loyalty cards from different companies or brands. They are often not used. For this reason, more and more technological solutions based on the Wallet principle are spreading – multiple loyalty cards in a special aggregating application – which add the possibility of paying with a smartphone. Many brands manage their loyalty programs in particular on the basis of their mobile application, thus saving their customers from having to carry around stacks of plastic cards.

Implementing tokenization will transform loyalty programs.

  • Cost reduction
    • Blockchain-based smart contracts can enable secure, traceable and transparent transactions, reducing costs associated with errors and fraud
    • Using smart contract solutions, a blockchain-based loyalty program can significantly reduce running costs
  • Drawing
    • For loyalty program providers, tokenization of loyalty points makes them unique, traceable and resistant to fraud.
    • For customers, it provides a single digital wallet platform to manage multiple membership programs.
    • Metacard offers the Giftverse, an NFT gift experience management system to help brands, creators and event organizers connect with new audiences, increase sales, increase brand awareness and build engaged communities.
  • implementation
    • Tokenization provides a clear understanding of loyalty points and allows you to easily redeem those points
    • The blockchain allows many independent participants to take part in a single market to exchange the value of the prices offered to customers.
    • Cryptographic tokens can define complex and consistent sequences and combinations of interactions between participants to obtain a single result.
    • The possibilities for formulating mechanisms and rules are unlimited. and easily customizable and, above all, not subject to manipulation and abuse.
  • Customer involvement
    • Vendors can connect customers to multiple service providers to provide them with a better customer experience.
    • Clients benefit from increased trading options with near real-time capabilities.
  • Program management
    • Suppliers get transparent reporting and tracking while gaining insight into customer behavior.
    • Transparent program management reduces loss of points due to expiration or fraud for customers.