With the current financial system, investing in certain assets is seemingly reserved for those with large amounts of capital or institutions. These assets, such as real estate, art or private businesses, have high barriers to entry. However, they can provide above-average profits for investors. Is there a way for the average retail investor to invest in such assets? A new way of investing could be on the horizon.
What is Tokenization?
Tokenization is essentially a way for an asset to be divided into tokens that certify ownership. For example, a rental property could be tokenized. The building would be funded using the proceeds from the sale of the tokens. Then, the revenue or profit from the property could be returned to the token holders. Each token would represent ownership. In the instance of the rental property example, each token could represent either ownership of the cash flows or partial ownership of the building itself. This process would allow a large investment, such as a rental property, to be bought using small amounts of capital from many investors. It also gives smaller investors the opportunity to diversify their portfolios with investments that were previously unavailable.
This process of investing is made even more available through the use of the blockchain. For instance, each token that shows ownership is stored on the blockchain and cannot be changed. Additionally, no intermediary, such as a bank, takes pieces of the profits along the way. By incorporating blockchain technology into these investments, both the organizers and investors benefit.
By using the blockchain, the organizers of these investments are able to reach larger numbers of people, which is beneficial in multiple ways. First, it allows them to generate either more capital or receive it faster with less work. This benefit would allow more ideas to be funded and potentially accelerate both economic and technological growth.
For investors, an entirely new class of investments would become available. Instead of spending hundreds of thousands on a piece of artwork or real estate, investors could now devote as little or as much capital as they wished to investments that have historically done well. It would break down the barriers to entry for assets that were previously only attainable for the wealthiest investors. Additionally, the use of the blockchain would allow anyone across the world to invest.
Overall, tokenization could prove to have a variety of benefits for all parties involved in the process. If the idea is brought to a large scale, it could democratize not only investing but the financial system as a whole.
How can Companies Create Their own Tokens?
Now that you understand the basics of tokenization and how it could prove to be beneficial, you may be curious as to where it is already being implemented. One company, The INX Digital Company, inc, is already exploring the benefits of tokenization.
INX is a cryptocurrency and digital securities platform. In January 2022, it tokenized its entire company, giving 40% of the net operating cash flows to its investors. It raised over $84 million. After that tokenization success, it sought to bring the idea to the masses.
INX hopes to change investing all through its digital securities platform. This platform is built on four main premises:
- Broaden horizons: It is hoping to bring assets previously reserved for institutions and wealthy investors to the general public.
- Provide liquidity: INX wants to make trading these digital assets easy.
- Comply with the law: INX is using smart contracts to comply with U.S. securities laws and avoid legal issues.
- Enable simplicity and efficiency: Trades of certain assets can take months to clear. INX is hoping to have them settled and processed in minutes on an easy-to-use platform.
Additionally, it has experts in place for legal review to allow for an easy and effective experience for anyone attempting to tokenize a company or project.
To open an account on INX and begin investing or raising capital, navigate through the website and create an account. Once you have submitted the necessary information, you can begin trading within five days.
The digital securities platform on INX is one of the few platforms that let you trade 24 hours a day, 7 days a week. It is available in over 35 countries. Without a doubt, INX is the way to go for anyone looking to invest in or fund alternative investments.
Image sourced from Unsplash
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