Tokenization of Assets on the Blockchain is a 4-step process: Authentication, Provenance, Fractionalization, and Trading.

Tokenization of Assets on the Blockchain
= Authentication
+ Provenance
+ Fractionalization
+ Trading

Tokenization of Assets on the #Blockchain is a 4-step process: Authentication, Provenance, Fractionalization, and Trading.

Step 1: Authentication

Authentication ensures the legitimacy of the asset being tokenized.

This involves:

  1. Verification of the Asset: Depending on the asset type, experts ensure its legitimacy e.g. Artwork requires expert validation, while real estate relies on property title verifications.

  2. Digital Identity Creation: A unique digital identity for the asset is crafted.

  3. Immutable Recording: The asset's digital identity is permanently stored on the blockchain, ensuring a verifiable authentication trail.

2. Provenance

Provenance is the detailed history of the asset—its origins, previous ownership, significant alterations, and other critical events. For many assets, like artwork or collectibles, provenance adds immense value and is a measure of authenticity and trust.

This involves:

  1. History Documentation: Each significant event or change in the asset's life is documented. For artworks, this might include exhibitions, restorations, or sales.

  2. Integration with Token: The asset's provenance is encoded into the token, ensuring that its entire history is always linked with it.

  3. Immutable Recording: Once recorded on the blockchain, the asset's provenance cannot be altered, ensuring a permanent, tamper-proof record. This offers potential buyers or stakeholders greater trust in the asset's history.

3. Fractionalization

This phase democratizes asset ownership by breaking the asset's value into smaller, purchasable tokens.

This involves:

  1. Dividing the Asset: The asset's total value is fractionalized into individual tokens, each representing a portion of the asset's worth.

  2. Issuance of Tokens: These tokens, each bearing a share of the asset's value and rights, are issued on the blockchain.

  3. Legal and Regulatory Compliance: Ensuring token issuance and management adhere to legal standards is crucial.

4. Trading

Trading boosts the asset's liquidity.

This involves:

  1. Creation of a Marketplace: A platform, be it a decentralized exchange or a bespoke platform, is necessary for trading asset-backed tokens.

  2. Peer-to-Peer Transactions: Direct transactions via blockchain bypass intermediaries, reducing cost and transaction speed.

  3. Price Discovery and Liquidity: The easily traded tokens enable better price discovery and enhanced asset liquidity.

  4. Redemption and Rights Execution: Token holders can exercise their token-associated rights, such as benefiting from dividends or claiming a portion of the physical asset.

Suitable Asset Classes

The Asset Classes best suited for Tokenization are:

  1. Art & Collectibles

  2. Bonds & other Debt instruments

  3. Carbon Credits

  4. Intellectual Property Licenses

  5. Luxury Liquors

  6. Private Equity & Venture Capital

  7. Real Estate

  8. Stressed Assets