Thanks to the tokenization of assets, financial markets will become more active, fair, and transparent. The emerging trend can reach every part of all peripheries of traditional finance, including venture capital.
During a World Economic Forum (WEF) panel organized last year, participants concluded that we’re advancing from isolated token assets to a whole token economy, with tokenization being capable of enhancing infrastructures without causing systemic financial risks.
This may be indeed the beginning of a new era for financial markets, but there are several challenges to be addressed until wider adoption is reached, especially when it comes to tokenizing stocks or real estate:
There are still no standards and regulatory clarity — While cryptocurrency can theoretically exist without any regulatory supervision, the so-called security tokens are meant to represent real-world assets, and thus they automatically fall under the purview of regulators. Unfortunately, there is no general consensus on which major rules should be implemented to enable the tokenization and trading of digital assets representing equities and other traditional assets.
Thankfully, the European Union (EU) is very supportive of , but it doesn’t focus too much on tokenization, even though it’s working on a new law for cripto assets. Elsewhere, the US Securities and Exchanges Commission (SEC) issued a statement at the end of 2020, saying that it encourages tokenization but within the current regulatory boundaries. Sooner than later, major regulators will be forced to align their regulatory frameworks to adjust to the increasing demand for tokenized assets.There is no digital identity that is recognized internationally — The other major challenge has to do with the difficulty of transferring tokenized assets across citizens of different jurisdictions. For example, how can a US resident transfer his token representing real estate to a citizen from an EU member country? This issue hinders the creation of borderless tokenization platforms with a global reach.
Considering the major regulatory challenges, the wider adoption of tokenized assets is expected to be gradual, though regulators won’t be able to withstand the new trend but rather lead it in a certain direction.
Tokenized assets are much faster, flexible, secure, and convenient compared to traditional assets, and the Algorand infrastructure takes these attributes to the superlative.
Some types of traditional assets are illiquid by their nature, e.g. real estate, art, or private equity. On the other end, tokenized assets can ensure liquidity and greater access to a broad range of investors.
When it comes to traditional assets, including equities, fixed-income (bonds), real estate, commodities, and art, their -based digital representations could automate processes, reduce costs, bring more liquidity, and ensure a better user experience when it comes to investing and managing these assets. All in all, there is a big difference between traditional assets and their tokenized versions, and the latter are the clear winners.
Algorand enables the tokenization of all types of assets by facilitating the creation of fungible tokens (which can be used for tokenizing commodities and bonds), non-fungible tokens (which work best for art, real estate, and some precious metals), as well as security tokens (they are ideal for equities).
The Algorand platform has been successfully implemented for a wide range of tokenization use cases, helping businesses and organizations streamline processes.
Businesses and other entities can tokenize any type of assets through Algorand Standard Assets (ASA) within minutes. Projects that tokenize their assets through ASAs automatically benefit from Algorand’s Layer-1 — an unforkable network with high throughput and unbreakable security.
Here are some examples of real-world assets that have already been tokenized with Algorand:
Money market and cash equivalents
USDC — Circle’s USDC is the fifth-largest cryptocurrency by market cap, with over $50 billion as of March 2022. The stablecoin is pegged to the US dollar-based on a 1:1 ratio. The price stability is achieved thanks to assets held in reserves, representing a mix of cash and short-term US Treasury bonds. USDC started as an ERC-20 token, but it eventually became a multi-chain network. In 2020, USDC landed on Algorand thanks to a partnership with Circle, empowering many decentralized finance (DeFi) applications.USDT — Tether’s USDT continues to be the most popular stablecoin, being the third-largest cryptocurrency by market cap. USDT has gradually expanded to other chains as well. Since 2020, the DeFi community can trade the USDT version on Algorand.STBL — AlgoFi’s recently launched $STBL stablecoin offers attractive borrowing rates.
Equities
BridgeTower Capital — BridgeTower Capital announced a partnership with Algorand to issue a BridgeTower Capital tokenized digital security that allows investors to get exposure to the company’s portfolio through digital securities in the form of tokens built on Algorand.LMX — -based private equity platform Realio launched the Liquid Mining Fund in collaboration with Valentus Digital, which comes with a conversion right for digital securities in LMX. The Liquid Mining Fund is focused on investing in early-stage Bitcoin mining businesses. The LMX token represents digital equity in the fund, enabling holders to benefit from the revenue generated from Bitcoin mining operations.Exodus — last year, digital wallet provider Exodus released its Algorand-based digital Common Stock Tokens (EXIT), each of which represents one share of its Class A common stock.
Fixed-income and bonds
Wizkey — in February 2022, Milan-based Wizkey integrated with Algorand to enable institutions to digitize fixed-income financial assets, such as non-performing loans.
Real estate
QuantmRE — QuantmRE, a Home Equity Agreements (HEAs) platform, is leveraging the Algorand protocol to deliver a real estate marketplace that allows investors to buy and sell fractionalized interests in the equity in residential homes.Lofty AI — another real estate marketplace on Algorand is provided by Lofty AI, a company backed by the popular startup accelerator Y Combinator. Lofty AI’s model enables anyone to become a direct owner of residential and office property and earn $50 per token rental income. The property tokens can be purchased via credit card, ACH transfer, and Algorand-based tokens.Vesta Equity — Global home equity marketplace Vesta Equity uses Algorand’s Layer-1 to build a solution to facilitate residential property financing and investing. Vesta’s -based platform connects property investors to homeowners and provides the needed tools to trade seamlessly. The solution enables homeowners to keep debt-free while retaining their full residential rights.
Commodities
Gold — Australian tech firm Meld Gold has built a platform for trading tokenized gold in the form of ASAs. Meld users can buy both physical and digital gold. Thanks to Algorand, Meld’s platform offers several key benefits, including increased efficiency, transparency, liquidity, security, and better pricing. Meld has also used Algorand to tokenize silver.
Algorand can also be used to tokenize art and memorabilia through non-fungible tokens (NFTs), which have been making headlines since the beginning of last year.
Algorand’s NFT technology was successfully implemented by SIAE (Società Italiana degli Autori ed Editori), the largest copyright collecting agency in Italy. The agency issued 4 million NFTs representing the rights of its more than 95,000 member authors. It took SIAE only several hours to tokenize the copyrights at the lowest cost possible. If the agency went for another major supporting NFTs, it would have done it in days.
Today, the NFT ecosystem on Algorand is expanding rapidly. It already includes NFT projects, such as Al Goanna, Tiger Chi, Flemish Giants, Algo Saiyans, and Yieldlings. There are also a number of NFT marketplaces, including AB2 Gallery, Rand Gallery, Zest Bloom, Dartroom, and AlgoGems. Additionally, Dept launched AlgoMart, the first-ever open source, white-label solution for creating an NFT marketplace. Built on top of the Algorand , AlgoMart removes the complexity around launching an NFT marketplace by offering modular tools, integrated payments and more.
Algorand’s Layer-1 is fast, secure, and transparent, which makes the best infrastructure to tokenize financial assets. As of today, Algorand processes over 1.6 million transactions per day, and the network supports over 5 million assets.
Thanks to its unique features, Algorand is poised to lead the tokenization trend.