These are tokens whose price is linked to the value of underlying assets: securities, commodities, derivatives, real estate, or art.
Trading in tokenized and traditional assets produces the same financial result: if the share price of BABA (Alibaba Group) increases by $2, the value of tokenized BABA.cx shares will increase by the same amount.
In addition, holders of tokenized assets receive regular deductions: adjustments for dividends, bond coupons, and others.
How do crypto exchanges create tokenized assets?
Issuers of traditional assets create ownership records in registries and tender the items. When they make a transaction, they change the asset’s ownership records.
Tokenized assets are created in a similar way, but issuers use blockchain.
There are two methods of tokenization:
With purchase – the holder of the token can exchange it for the underlying asset. Such assets are traded on the FTX platform;
Without purchase – the token holder cannot exchange it for the underlying asset. In this case, the value of the asset is backed by cryptocurrency or fiat money.
Investors can buy tokenized assets on the spot market and withdraw them to an external wallet, or trade them with leverage without the possibility of withdrawal.
Are tokenized assets NFT?
Not really. NFTs are non-interchangeable tokens with unique identifiers and linked content. The value of two identical NFTs can be different.
Tokenized assets are interchangeable and equivalent, just like stocks of companies in the stock market or contracts for raw materials.
However, NFTs that indicate ownership of physical objects can also be considered tokenized assets.
How are tokenized assets regulated?
Crypto exchanges are licensed to handle digital assets and contract with a broker to supply quotes. If the issuing exchange buys assets for tokenization, the broker holds them, i.e. acts as a custodian.
From the perspective of regulators, trading tokenized assets is no different than trading cryptocurrency.
What is the difference between trading conventional and tokenized assets?
To trade on a traditional exchange, you will need a contract with a broker, sometimes a paper contract. Often, brokers set fixed commissions for trading assets, for example, 0.1% of the transaction amount, but no less than $50. There are hidden fees for maintaining an account, storing assets, or withdrawing a limit order.
Trading tokenized assets requires registration on a cryptocurrency exchange and passing the KYC procedure. Cryptocurrency platforms have transparent fees. There are no hidden fees: users pay a percentage of the transaction amount and transaction fees when withdrawing funds to an external wallet.
The range of assets of traditional brokers is limited. They trade stocks of national companies, local mutual funds, fiat currencies, and popular commodities such as gold. The reason is the legal difficulties in adding foreign assets.
Crypto exchanges provide users with a wide range of tokenized assets:
- stocks of popular U.S., European and Asian companies;
- commodities from gold to rubber;
- ETFs for indices and industrial sectors;
- stock indices, fiat currencies, and government bonds.
What do I need to know before buying tokenized assets?
Terms of tokenization on the platform – with or without purchase. In the first case, you can exchange tokens for assets, in the second – only trade them.
The way regular payments like dividends are accrued – to holders’ accounts or as adjustments to asset rates.
Trading pairs – with bitcoin, USDT, or tokenized fiat currencies.
Trading sessions are 24-hour or limited. The venues may suspend trading in accordance with stock exchange schedules.
Who is tokenized assets trading suitable for?
Traders who are looking for new trading tools. Cryptocurrencies often follow the bitcoin exchange rate. At the same time, the prices of tokenized stocks, indices, commodities, and other assets can rise and fall independently of each other.
Tokenized assets also help diversify a cryptocurrency portfolio without signing up for third-party platforms and contracts.
Asset tokenization is the creation of a digital record on a blockchain for a specific, real asset. Tokenization helps increase the liquidity of assets and is a tool for attracting financing for businesses that are in the early stages of development. A huge number of assets can be tokenized and made available for trading on exchanges: real estate, securities, precious metals, artwork, land, etc.
A business that needs investment issues tokens, which are recorded in a distributed blockchain registry. Unlike asset issuance in the traditional financial market, the business does not need intermediaries: a payment agent bank, a custodian, etc. The company issues tokens and transfers them directly to investors providing capital. The token is stored in a wallet, and ownership is protected by a smart contract.