Tokenization, a revolutionary process of converting rights to an asset into a digital token on a blockchain, is reshaping how we interact with real-world assets. Having evolved significantly from its initial stages, tokenization now spreads to industries far and wide, firmly establishing itself in areas such as art, luxury, supply chain, real-estate & many more. This digital development has not only democratized asset ownership but also unveiled a new definition of digital asset ownership for the years to come. With Avata, we want to take a look at important trends and impact we expect to see from tokenization in 2024.
Market growth & Institutional involvement
In 2024, Tokenization is growing at an unprecedented rate. With an evolving regulatory landscape becoming more accommodating and inviting, institutional players from banks to hedge funds are getting involved. As they join, they supercharge, with predictive estimates of market valuation hitting the trillions by 2030 (Outlier Ventures RWA Thesis). Without a doubt, we are headed in the direction of a new economy, with similar principles, but a different asset infrastructure which will bring about in many innovative changes, some of which we recognize more than others!
A tokenized economy
Having a tokenized economy refers to the ever-increasing amount of tokenized assets in circulation, and how that impacts our interactions with said assets, based on the powerful features of tokenization. Given the amount of active data associated with tokenized assets, and their affinity for automation, the focus of this tokenized economy revolves around upgrading optimization, speed, & efficiency in existing models & data flows. Beyond the progression of efficiency, tokenized assets also offer new, unprecedented features that are facilitated by the digital transformation of physical assets.
For example, recently, in the art industry, tokenization has been acclaimed for its ability to fractionalize art pieces that are locked behind entry barriers of outrageous prices. Now, with an art piece worth $100 million divided into 1 million pieces worth $100, the entry barrier for investment into this art piece has been reduced significantly (from $100 million to $100), allowing for more people to invest and interact with the medium. This concept, fractionalization, is expected to become one of the cornerstones of the upcoming digital asset economy.
Another powerful outcome of Tokenization is the facilitation of trading real-world assets. In most cases, it is much easier to transfer the unique token which represents the underlying asset, rather than to transfer the asset itself. This simplification allows for much faster, more efficient transfers, which can be useful in many different industries!
Insurance and its future impact
As tokenization permeates industries such as real estate, arts, and intellectual property, the complexity and value of these assets increase, thereby elevating the associated risks. As such, there is a strong opportunity to provide a layer of security and risk mitigation to individuals and companies alike, by embedding insurance into these tokenized assets. This can serve as a powerful tool for ensuring trust and stability. It provides a safety net against potential risks like cyber threats & fraud, securing confidence in a fast-developing industry.
This enhanced confidence is crucial for attracting larger, more conservative institutional investors, who often have stringent risk management requirements. By providing a layer of security and risk mitigation, insurance could play a pivotal role in the mainstream adoption of tokenization, fostering its safe, sustainable growth over the next few years.
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