How To Invest in Tokenization: A Primer

If you are looking for investment opportunities in the blockchain space, asset tokenization may be a sub-sector to look at. Read on to learn how to invest in tokenization.

What Is Tokenization in Crypto?

Tokenization is the process of digitally representing an asset as a cryptographic token on the blockchain.

Blockchain-based bridges real-world assets into the digital world, allowing users to store, trade, and transfer (physical) assets digitally.

Through the act of tokenizing, ideally, economic value and rights of the asset are embedded into the token. As a result, the issued token carries the ownership rights and value of the asset it represents while the underlying asset continues to exist off-chain. Token issuers will typically place the underlying physical asset in safe custody to ensure the token is always fully backed.

You can tokenize intangible assets like copyrights, royalties, and intellectual property (IP) as well as tangible assets like real estate, art, precious metals, and consumables (e.g., coffee). Financial securities like equities and bonds can also be tokenized.

Blockchain-Based Asset Tokenization on the Rise: Here’s Why

Whether through a non-fungible token (NFT) or a security token representing a real-world asset, people are increasingly taking an interest in tokenization because of the benefits it can bring.

Tokenization is making fractionalized ownership possible, allowing small investors to acquire high-value assets that were previously beyond their financial capabilities. That means investors can buy tokens representing a $100 million piece of fine art at a lower price point like $1,000. This gives them fractional ownership, thereby enabling investors to be part of the investment in the first place. Besides increasing accessibility to small investors, fractional ownership allows investors to diversify their portfolios with large ticket-size assets that would traditionally not be on their plate of investable assets.

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Furthermore, asset tokenization increases market efficiencies by enabling people to transfer value without trusted intermediaries. When intermediaries are involved, costs may increase, and the transaction process may be slower. However, blockchain technology eliminates them, making transactions potentially cheaper, faster, and frictionless.

Moreover, traditionally illiquid assets, such as property or venture capital, can become more liquid through tokenization as it can enable secondary market trading in tokens representing ownership.

How to Gain Exposure to the Growing Tokenization Market

Now, let’s take a look at how you can add exposure to the growing asset tokenization market to your crypto portfolio.

Buy Tokenized Stocks

You can buy tokenized stocks of publicly-traded companies like Facebook, Apple, Google, Amazon, Tesla, and Netflix on crypto exchanges like FTX and Bittrex.

Tokenized stocks are digital assets that represent shares in publicly-traded companies. They may be backed on a ratio of 1:1 with traditional stocks or use decentralized price oracles, allowing them to mirror the performance of the underlying traditional security.

By purchasing tokenized stocks, you will have access to markets 24/7. This is a feature you will not enjoy when you buy traditional stocks that trade within specified business hours. Tokenized stocks also provide fractional ownership in traditional securities.

Buy Crypto Tokens of Tokenization Ventures

Buying the crypto tokens issued by projects working on tokenization is another option for anyone that wants to invest in the promise of tokenization.

Investors could benefit from the token, especially if it represents a real valuable asset. However, research the project thoroughly before buying its token. You could examine token liquidity, the project’s team, token holder benefits, and the progress the project has made in achieving the goals on its roadmap.

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Buy Layer-1 Tokens from Top Tokenization Blockchains

You may expose your investment portfolio to the tokenization market by purchasing Layer-1 (L1) tokens from blockchains that enable tokenization.

L1 tokens are the native tokens that power the main network of a blockchain by serving as incentivization vehicles and as a settlement layer. Examples of tokenization blockchains are Ethereum (ETH), Solana (SOL), Avalanche (AVAX), and BNB Chain (BNB).

You should research each platform before acquiring its token. Also, ask yourself if you believe in the future success of this blockchain before investing in its token for the long term.