Blockchain technology is revolutionizing the way we own assets, turning gold, oil or even real estate into digital tokens. Let's take a deeper dive into tokenized commodities, where investing becomes easier, more transparent, and more efficient.
1. What are tokenized-commodities?
Simply put, this is a digital version of real assets such as energy, agricultural products, precious metals, etc. This transformation process is called “tokenization,” in which asset ownership is converted into tokens based on blockchain technology. Each token represents part or all of the underlying asset, allowing for partial ownership and easy access.
2. Operational process of encrypted goods:
Step 1: Release
Assets are divided into tokens on the blockchain network, often through exchanges or specialized cryptographic platforms.
Step 2: Store and manage
Custody services or use smart contracts to ensure safe storage and management of original assets.
Step 3: Transaction
Tokens are allowed to be traded on decentralized (DEX) or peer-to-peer (P2P) exchanges, increasing liquidity and global reach.
Step 4: Convert
Token holders can exchange them at a certain rate for real assets through issuers or smart contracts.
3. Types of goods that can be encoded:
Precious metals: Gold, silver, platinum,... allow ownership without needing to be stored in physical form.
Energy: Oil, gas, renewable energy certificates, etc. provide more accessible opportunities for the energy market.
Agricultural products: Soybeans, corn, wheat, coffee,... help diversify investment portfolio and prevent inflation.
Real Estate: Allows fractional ownership and increases liquidity in the real estate market.
4. What is commodity-backed cryptocurrency?
This is a type of digital asset that is tied to an actual commodity such as gold, oil, or real estate. Their value will change according to the price of that commodity. This provides more stability than traditional cryptocurrencies.
For example, Tether Gold (XAUT), Paxos Gold (PAXG) are backed by gold, OilCoin (OIL) is backed by oil.
5. Benefits of tokenized goods:
Increase liquidity: Allows buying and selling small portions of assets, expanding investment opportunities.
Divisibility: Allows investing in small portions of assets, expanding opportunities to more investors.
For example: A gold bar worth 10,000 USD can be tokenized into 10,000 tokens. This allows investors to trade smaller units without the need to store physical gold.
Transparent and secure: Transaction history is recorded on the blockchain, minimizing fraud and increasing trust.
Reduce costs and transaction times: Instant payments through smart contracts, eliminating intermediaries.
Global reach: Enables everyone to enter the market regardless of geographical location or financial constraints.
6. Challenges of encrypted goods:
Legal aspect: Need to comply with complex legal regulations regarding securities, commodity trading and financial markets. Many lawsuits have occurred, typically the US Securities Exchange Commission (SEC) said that Cardano (ADA), Polygon (MATIC) and Solana (SOL) are a type of security.
Liquidity: Need to attract institutional investors to further increase liquidity.
Standardization and interoperability: There is a need to build common standards and interoperability between blockchain platforms and commodity markets.
Cybersecurity: Strengthening security to protect digital assets and transaction data is paramount.