By leveraging blockchain technology, tokenisation is changing the face of certain asset classes and providing investors with opportunities that they may not have access to today, such as art and real estate. Financial structuring and legal assistance also add to the benefits.
In an article published in June, the Word Economic Forum argued that blockchain technology, along with the crypto economy, could lead to the development of a much more inclusive financial and technological infrastructure. Technology has long been an indispensable partner of the financial sector. Many fintechs are offering innovative services, with increasingly digital approaches.
The Covid crisis has helped several of them to stand out. This is true of Twint, which recorded an influx of new users of up to 7,000 per day during the lockdown.
The digitalisation of financial services and flows is accelerating and investments are naturally following the trend. This is particularly true of alternative investments, which are increasingly turning to tokenisation via blockchain. Although the technology has been ready for some years, the market has been waiting for the right moment.
The democratisation and media coverage of blockchain since the beginning of the year have opened up new prospects for promoters of these investments.
The share of tokenisation in the exchange of property titles, particularly in real estate, is likely to increase drastically over the next few years.
In itself, a token is nothing more than the digital representation of an underlying asset.
Even if technology is a key factor in the tokenisation process, the real challenge lies in the financial structuring and in compliance with the broader financial legal framework. It is therefore important to identify which part of the current regulation can already be used – transfer of securities, transfer of financial assets – and which part of the regulation is specific to the use of digital securities or tokens.
The onboarding of investors through a fast and efficient KYC is a key factor in this type of operation, as is also offering custody solutions once the transaction has been completed and validated.
Tokenisation is therefore not just about offering access to a simple platform where tokens can be exchanged, but about a complete process, from financial structuring to custody and the technical creation of the token. Such an approach requires cross-disciplinary expertise, both on the technological side, as well as on the real estate development side in the context of the tokenisation of a property, and in the approach to asset management from a financial and legal point of view.
Recently, new models of fundraising have also emerged thanks to the innovations brought about by DeFi, an acronym for Decentralized Finance. Amongst these models, many projects The digitalisation of financial services and flows is accelerating and investments are naturally following this trend. IDOs are increasingly used as a tool to raise funds in a completely decentralised way.
Decentralised Exchanges (DEX) are innovative in their ability to provide a trading venue for digital assets. These markets operate through Automated Market Maker (AMM) smart contracts, which take the form of bilateral liquidity pools.
The price of a given pair of digital tokens is determined by the ratio of asset reserves that are deposited in the vaults by market makers called LPs, as in private equity. In this framework, anyone can act as a market maker for a given pair by depositing appropriate reserves.
As a result of this process, LPs earn passive income indefinitely through market-generated trading fees based on the percentage of their contribution to the pool, until liquidity is subsequently withdrawn.
The best known decentralised exchange is Uniswap. It has been growing rapidly since the beginning of 2021, and has over USD 10 billion in weekly transactions. The advent of such a platform therefore reinforces the interest in tokenisation by offering access to liquid secondary markets. With investment opportunities set to become increasingly diversified.
“The digitalisation of financial services and flows is accelerating and investments are naturally following the trend.”