How $544 Trillion Worth of Assets Could Become Tokenized
Alec Ziupsnys is a trader and analyst who focuses on cryptocurrency. In his most recent article via Hackernoon, Ziupsnys made a bold claim regarding the future of security tokens, but provided plenty of reasons to support his forecast.
The Evolution of Security Tokens Explained
With Bitcoin just a little over a decade old, we are witnessing the first major industry entering the blockchain space. It just so happens to be the most valuable industry in the world.
Asset ownership is now becoming linked to a security token in a given blockchain network. Numerous security token protocols already exist, with various means of proving regulatory compliance, reducing middlemen, while providing transparency and oversight.
In fact, Ziupsnys believes the innovation is so radical that it will have an impact similar to what was brought about with emails:
“Think of traditional assets similar to that of mailed physical letters and tokenized assets to that of emails. Bitcoin first brought us programmable money and with that we are now discovering the power of programmable securities.”
Ultimately, he believes more than $544 trillion worth of assets throughout the world will “inevitably” become tokenized. The following outlines his reasons why.
How Security Tokens Will Radically Disrupt Traditional Finance
- Fractional Ownership: Just as one bitcoin can be divided and transferred down to one millionth of a coin, security tokens can do the same. Never before have highly valued assets had the ability to have ownership divided in a simple, efficient, and compliant manner. With fractional ownership, investors can diversify their portfolio and include investments which were otherwise too expensive and out of reach. At the same time, those wishing to sell high valued assets will have a much easier task. Instead of searching for a few liquid investors to purchase the asset, they can cut the barriers to entry and open the door to a much larger pool of investors by significantly decreasing the minimum investment amount thanks to fractional ownership.
- An interoperable financial realm: With the birth of the internet, we’ve all witnessed an interconnected global economy. Yet the world of finance remains stubbornly segregated. Security concerns and customer protection has resulted in centralized ledgers with virtually no interaction among other enterprises. Yet since regulatory requirements can be algorithmically enforced through security token protocols, interoperability is already developing. Blockchain agnostic tools are being created, which will likely result in globally interconnected financial realm: investors will have access to assets anywhere in the world, while enterprises searching for investors will experience the same benefit.
- The removal of middlemen: The trading of assets generally features a settlement cycle which can take days. It requires external parties to verify proper documentation of the transaction details, as well as investor eligibility, among other checks. The associated costs can add up quickly. All of this can be circumvented with blockchain-based assets. Instantaneous settlement cycles are already in the works. Security token protocols which feature transparent compliance eliminate the need to turn to external parties for compliance and documentation verification.
- Liquidity: As partly a biproduct of fractional ownership, the typically illiquid asset classes in traditional securities become liquid. A real estate developer looking to sell an expensive asset is no longer confined to a small pool of highly liquid investors. Instead, fractional ownership results in added liquidity to that highly valued asset, as we have seen. In addition, security token trading platforms— such as OpenFinance Network and tZERO— allow for 24/7/365 trading, from anywhere in the world, provided users have an internet connection. This is in sharp contrast to Wall Street for example, which operates Monday – Friday from 9:30am – 4:00pm and is closed during 9 national holidays.
Apparently the world’s leading financial institutions also recognize some of these benefits.
Note: The global forex market is also valued in the trillions — $6.6 trillion to be exact. We’ve reviewed the best platforms for Forex trading in the US to show you how to get started with Forex.
For more on security tokens, be sure to review our comprehensive security token guide.
What do you think about Ziupsnys’s remarks on the future of security tokens? Do you agree with his reasons why the industry will see success? Let us know what you think in the comments section below.
Image courtesy of xconomy.