How to make illiquid assets more accessible and attractive to buyers.Download the full report
Unlocking the value of physical assets as digital tokens
Today, it takes one click to buy an airline ticket or a new sweater, but if you want to buy stocks or get a mortgage, transactions are more time intensive. Whether it’s waiting for documents or settlement, many types of transactions aren’t instant. Assets like gold, real estate, fine art, or carbon credits are more difficult to transfer, often obligating buyers and sellers to contend with mountains of paperwork and lengthy procedures. By representing physical assets as digital tokens on a distributed digital ledger or blockchain, it’s possible to unlock the value of real-world assets and to exchange them in real time.
Accelerating the exchange of value using blockchain
Today’s cross-border payment processes are fraught with time delays, complexity, and inefficiencies. Payments are the backbone of global commerce, but payment in real time has yet to be achieved. Whether it’s payments or other asset classes, the ability to move real-world assets onto a blockchain offers the advantages of a secure digital platform, while retaining the characteristics of the asset. Securitization is the process through which contractual obligations such as mortgages, car loans, personal debt or receivables are pooled, and their cash flows are sold as standard units to investors. Since the early 1970s this process has become more common and broadly applied. But “tokenization” goes one step further. Instead of restructuring cash flows like securitization, it monetizes the “right to use.”
Digitization of assets is a process in which the rights to an asset are converted into a digital token on a blockchain. Ownership rights are transmitted and traded on a digital platform, and the real-world assets on the blockchain are represented by digital tokens.
Many types of financial assets are already digital, such as when cash is represented as numbers on a screen. But tokens enable certain assets to move swiftly across digital platforms or networks. Opportunities for cross-border trade increase as geographic barriers are removed. Tokenization can unlock new markets for previously frozen, underutilized, or illiquid assets and offers possibilities for new types of fractional ownership.
Token-based economy opportunities and challenges
Token-based assets are rapidly gaining widespread acceptance. The initial coin offering (ICO) market is a case in point. This new method of crowdfunding recently broke the USD 4 billion barrier globally. ICOs involve the creation and sale of cryptocurrency, or tokens, to fund projects. With an ICO, a project has a viable alternative to the traditional routes of obtaining money through banks or venture capitalists, which typically involve a lot of time and some sharing of control.
ICOs also bypass the limits of traditional crowdfunding by introducing a secondary market to their funders. This secondary market is why, despite ICOs generally being considered high-risk ventures, many people are willing to take the chance in the hopes of large payoffs later.
Digital currencies are another area that has grown quickly. Recently, Sweden has begun looking into creating a new form of money called a central-bank digital currency (CBDC). The goal is to complement electronic payment modes from commercial entities with a state-sponsored solution that is as inclusive and ubiquitous as traditional banknotes and coins used to be.
Meet the authorsJesse Lund, Vice President, Global Blockchain Market Development, IBM Financial Services Sector
Shanker Ramamurthy, General Manager, Strategy and Market Development for Global Industries, Blockchain, and Industry Platforms
Bridget van Kralingen, Senior Vice President, Global Industries, Platforms and Blockchain
With systems stressing a power grid unprepared for new energy patterns, blockchain offers relief by making it more distributed.
This report shows how open, equitable blockchains can be a positive force and help garner the full trust of clients and business partners.
Developed in collaboration with the Blockchain Research Institute, this report explores how blockchain is transforming education with an emphasis on lifelong learning and reskilling the workforce.