Nicole Anderson, Managing Partner, Redsand
It is profound and meaningful to see how, through blockchain, lives can be changed for the better. Set aside the jostling and turn down the volume on the noise focusing on closed-circuit incrementalistic projects (mostly trials in large institutions hampered by political blocks to real disruption). What we should be inspired by is how this technology has the power to turn economic and business models on their heads.
The potential of asset tokenisation
Tokenisation of assets can have a huge economic development impact. Individuals, businesses and even whole economies can and will be affected by new financing models, greater market liquidity, broader market participation and consumer adoption and control. This will create a change in economic power bases on so many levels.
Tokenisation is immensely simple – the ability to capture information, value, ownership and conditional or legal construct via encrypted code. This information can all be collapsed into a single token housed via a transaction on a distributed ledger (DLT) or blockchain, where the data stored is immutable, complete and transparent, eliminating the possibility of single-point failures and unresponsive servers.
One such area is the use of tokenisation to provide greater market liquidity to traditional asset classes – hence its impact, bit by bit, on global capital markets.
Asset tokenisation can effectively reduce information asymmetry, decrease the friction to trade, and convert illiquid assets into liquid assets – enabling pervasive participation in markets which previously were out of reach to all but a privileged few. What this means is that the possibility for the average person to gain access to investment opportunities and financial products, and direct their wealth creation, is far greater than ever before.
Decentralised economies – viable micro-economies made possible by tokenisation
It is completely viable to consider how access to basic utilities such as power can form the basis of decentralised economic models governed and maintained by those actually needing the service, rather than one authority controlling access to that service, as we have today in energy provision.
By using blockchain to provide a mechanism to trade and exchange energy or power via a marketplace, buyers and sellers in sustainable sources of energy such as solar are already actively taking control of how they manage this precious resource. Blockchain enables a transparent, immutable record of energy costs as well as an immutable ledger to record transactions. A token acts as a medium of exchange facilitating the transaction as well as conditions of use. This means that an entire economy of power usage can exist off the grid. This is a true disruptive example of a traditional market.
Tokenisation stands to bring massive opportunities for growth and diversification to the asset market. Many of these derive from blockchain technologies democratising asset ownership and replacing expensive intermediaries. However, the technology is still new, and many legal questions remain unanswered.
- 1. Introduction to Redsand’s masterclass on tokenisation
2. Understanding what tokenisation is
3. How to build a token economy
4. Blockchain explained and why is there so much interest
5. Legal and regulatory overview
6. The impact and future of tokenisation
Tokenisation stands to bring massive opportunities for growth and diversification to the asset classes by enabling greater participation in capital markets by retail and professional players given the reduction of cost of entry and the flexibility provided by fractionalisation of asset allocation and ownership. In addition, by embedding contractual, financial and event-based data in a ‘single’ encrypted form means that operational aspects to running a business can be radically transformed. The potential for change is enormous in many industries. To find out more, please click here.