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  • The tokenization of real world assets

  • Authors: Hitesh Bhatia, Tarun Hariharan

    As per recent estimates, the current value of all real-world assets is ~$256T globally (theblockbox). However, the processes to trade these assets are still primitive, where most of these assets are signified on paper, thereby increasing transaction time and costs. Subdivision of these assets is also limited in its current form, thereby constraining liquidity. Tokenization is bound to play a transformative role in asset management for years to come. It holds the potential to truly democratize countless markets while making them safer and more fair.

    What are some of the live cases of tokenization that are gaining relevance?

    This transformation is in motion. There are several live cases of tokenization of real world assets and utilities that we see today.

    Automotive

    US based luxury car maker Karma Automotive aims to provide a futuristic car experience for their customers by registering the car in blockchain and tokenizing its ownership.

    The long term vision of the company is to use blockchain as the linchpin to create an ecosystem for all the entities in the automotive industry such as financiers, insures, and motor vehicle authorities of respective jurisdiction. Tokenizing car ownership opens the door to new use cases for the ‘digital key’ of the car for peer-to-peer sharing, service logging, fractional ownership etc. (alphwallet.com)

    Tokenization is possible not only for vehicles but also spare parts. As vehicles get smarter, it’s possible for native AI based in the vehicle to begin ordering spare parts for itself, on its own. An owner could assign value to each spare part, as per availability and demand, in essence creating or participating in a “market” of spare parts, much akin to competitive spare part companies such as Enkei, Hyundai Mobis etc. The user can set a “floor” price for each spare part, and the car can automatically order these and subtract currency from its allocated maintenance budget (trendhunter.com).

    Healthcare

    With the global covid outbreak, the use case for tokenization of health information has become increasingly relevant and vital.


    There are projects like Emrify’s Personal Health Record platform (image above) on the Ethereum blockchain used to deliver trusted health information to the right hands at the right time anywhere in the world (m.apkpure.com). Also, Medtokens by Medicalchain is a decentralised platform that enables secure, fast and transparent exchange and usage of medical data (medicalchain.com).

    Real Estate

    Tesla potentially accepting payments in crypto is a good start to this conceptualisation. However, vehicles are assets that incur depreciation making it more like a purchase. A good future case of tokenization of real world assets would be the exchange of Real Estate for BTC. Real Estate and BTC both have appreciation potential making it more an exchange than a purchase.

    What other types of assets are expected to be tokenized next?

    NFTs are said to have become one of the main factors influencing the adoption of cryptos (cryptobriefing.com). The below image shows Google searches for NFTs in comparison to DeFi, this is as per Coingecko (cryptobriefing.com)

    People are selling and buying art, furniture and even houses and land that exist only virtually (nytimes.com). However, if there is ownership of an asset which needs to be verified then those assets can most likely be tokenized.

    In terms of assets that hold financial value, automobiles, commodities, artwork, exquisites and stocks have started being tokenized and in the near future potentially we could see better examples of tokenized Real Estate.

    An additional use case would be mortgages, reverse mortgages and collateralized on-chain margin with real estate, especially in the futures and options market. If real estate pricing makes it on chain, it makes it possible for absolutely anyone to take directional bets or hedge risk, indirectly into real estate, essentially like a REIT.

    There are also other assets that do not hold financial value, yet need ownership verified like Passports, Birth certificates, and identity documents. These too could be more prominently tokenized using blockchains, which could tackle and address a lot of inefficiencies in the current primitive systems.

    How could customers today buy and sell NFTs with FalconX?

    Currently clients cannot purchase NFTs directly through FalconX. However, they can gain exposure to NFTs as we support a number of tokens of blockchains on top of which NFT projects work.

    So what’s next?

    Looking ahead, it’s clear that real world assets will continue to be tokenized and infrastructure is needed to support these multi-trillion dollar asset classes. FalconX is building a connecting tissue for the tokenized economy of the future. As tokenization rapidly progresses we will strive to build the infrastructure enabling institutions to access and develop the tokenized world.

    FalconX is not an investment advisor. This piece is for informational purposes only, and any comments here do not constitute investment advice. Investment involves risk. As a general rule, you should only trade in financial products that you are familiar with and understand the risk associated with them. The risk warning provided herein is not exhaustive, you should carefully consider your investment experience, financial situation, investment objective, and risk tolerance level. The risk of loss in financing a transaction by deposit of collateral is significant. You may sustain losses in excess of your cash and any other assets deposited as collateral.