Tokenizing Real World Assets Summary
Tokenizing Real-World Assets: The Future of Investment
In recent years, the concept of tokenizing real-world assets has gained significant traction in the investment world. This innovative approach leverages blockchain technology to transform how we invest in and trade traditional assets like real estate, invoices, and more. Let’s dive into why this matters and how it’s reshaping the investment landscape.
The Evolution of Asset Tokenization
Initially, asset tokenization rode the coattails of the ICO (Initial Coin Offering) hype. Many projects attempted to tokenize assets without fully considering the practicalities or benefits. Now, the industry has matured, focusing on building the necessary infrastructure to make tokenization truly valuable.
Why Tokenize Real-World Assets?
- Improved Liquidity: Traditionally illiquid assets like real estate can become more easily tradable.
- Transparency: All relevant data about the asset is recorded on the blockchain, accessible to investors.
- Fractional Ownership: Investors can own smaller portions of high-value assets.
- Efficient Trading: Ownership can be transferred quickly and with less paperwork.
- Programmable Compliance: Regulatory requirements can be built into the tokens themselves.
Real Estate: A Prime Example
Real estate, the second-largest asset class globally, serves as an excellent case study for tokenization. By tokenizing a property, investors can:
- Buy and sell portions of their investment more easily
- Access real-time data about the property’s performance
- Use their tokens as collateral for loans
The Infrastructure Behind Tokenization
Several key components make asset tokenization possible:
- Data Oracles: Provide accurate, real-time data about the asset
- Transfer Agents: Facilitate compliant transfers of ownership
- Secondary Markets: Allow for trading of tokenized assets
- DeFi Applications: Enable the use of tokenized assets as collateral
Beyond Real Estate
While real estate is a prominent example, tokenization extends to various assets:
- Invoices: Companies can sell future payments at a discount for immediate capital
- Supply Chain Goods: Tokenizing shipments adds another layer of security and traceability
- Bonds, Private Companies, Hedge Funds: Tokenization can make these more accessible and tradable
The Road Ahead
As the infrastructure for tokenizing real-world assets continues to develop, we’re likely to see trillions of dollars worth of assets moved onto various blockchains. This shift promises to bring increased efficiency, transparency, and accessibility to traditional investment markets.
Tokenization of real-world assets represents a significant step in bridging the gap between traditional finance and the world of blockchain and cryptocurrency. It offers the potential to democratize access to investments while providing new tools for managing and trading assets. As the technology and regulatory landscape evolve, we can expect to see more innovative applications and a broader adoption of this transformative approach to asset management.
Tokenizing Real World Assets Transcript
00:00:01 [Music] hi welcome to the inter axis YouTube channel and inter axis dot IO today and for a whole week we’re really going to talk about tokenized real-world assets and the idea of taking some real-world assets and actually tokenizing i’m putting them on i don’t want to say the blockchain on a blockchain why it’s so important who the players are in some of these aspects so a few years ago it became really popular and and it was really trending to talk about sto security token offerings real world
00:00:41 assets on chain there was some real estate that was being looked to put on chain and that some of that hype some of that hype cycle was capitalizing on the ICO hype and the ICO bubble the the initial coin offerings and so now people were saying okay I can take my real estate asset or I can take a private company or something and put it on chain usually on a theory I’m using ERC tokens and all of a sudden I can find investors and they want to invest because I’m calling it a token what they were missing was one was it even a good
00:01:17 investment what what did it mean to tokenize an investment why would you even do it was there a market for it why was it important all those things that now we want to talk about and now kind of the pipes the plumbing the infrastructure has been built to facilitate quite a bit of that so what do we mean when we say tokenizing real-world assets this is where we start using the utilizing the blockchain the plumbing of the blockchain the infrastructure of it in some of the characteristics to take real-world
00:01:46 assets and and transfer provenance or move ownership remove other de notions of that asset on chain what do we mean by that and we’ve talked about it several times in several of our videos but we want to discuss that here so let’s take say a real estate investment because real estate has been the the the biggest use case I think so far in terms of tokenizing real world as and real-estate some of the problems with it is it’s highly illiquid okay that means if I want to invest in this particular office building right now I I
00:02:26 can put my money in and maybe I get some sort of distributions or dividends based on the rent that is collected minus the expenses that are paid for things like a loan on the property for paying for the up key for paying for the air conditioning you’re paying for the staff to manage it and everything else hopefully at the end of the day there’s some profit leftover and it gets distributed to me as the investor however in the in the meantime in the months or years or whatever might be that I’m holding that investment and
00:02:57 that the group the investment group is holding that investment it is a liquid I can’t get to the cash that I initially put in right so if I put in let’s let’s call it a hundred thousand dollars into this investment now I might get we’ll call it eight thousand dollars a year in terms of a distribution which is great that you know eight percent return is it’s pretty good on my money right but in the meantime I don’t necessarily have access to this hundred thousand dollars and the reason is because it’s a liquid
00:03:27 it’s been baked into the contract into the into the LLC documents that I signed that I can’t go just transfer ownership or any piece of my ownership part of the reason is because if I go transfer my ownership then the management company or the developer that bought this and put this investment group together would have to value it they’d have to have to repaper they’d have to make sure that person that’s buying in is an accredited investor they would have to then sign all the paperwork they would have to
00:03:59 then get the distributions of my dividends it would now go to them and it’s a pain it costs them a lot of time it costs um a lot of money they don’t want to do it so they just tell me when I buy and look you have two choices if you want to get out you either wait till we sell the building in which case there’s a liquidity event and you’ll get your money back plus you know whatever gain there has been on shares or if you really need to get out you can redeem your shares to the company and we will we’ll buy it back
00:04:30 from you but probably at a reduced rate because it’s a pain because we don’t have to keep we don’t want to have to keep the cash on hand to redeem it and by the way there might be a limit so we can’t have everyone redeeming all at once so that’s part of the problem with real estate is that it’s illiquid and and look 8% looks really good now but what if interest rates jump up and all of a sudden I can go somewhere else and get a 10 or 14 or 15 percent return on my money I’d want to do that and Here I
00:04:56 am stuck earning a measly 8% right so I have some interest rate risk as well because it’s a long-term asset that I’m I’m locking up so assets like this it’s an in real estate is the second largest asset class in the world behind only debt so if you can take a real estate and you can take debt instruments and put those on chain and take all that paperwork and all the the data that goes into those particular assets and put them on chain now you have something right because one you have them in a in
00:05:32 kind of a transparent way you can see ownership which you can do is you can actually track the provenance or the ownership of that particular asset so now take the hundred thousand dollars that I put in can give me a hundred thousand tokens right representing my ownership of that real estate now when we’ve put this on chain and we’ll just call this chain because I don’t want to name any sort of change that we’re going to use but if we just put these tokens on chain I have these tokens sitting in
00:06:01 my wallet right and again this could be like in a theorem all this could be a not you know just any non-custodial wallet this could actually be at a qualified custodian so they could be holding this for me because again most of the investors in this don’t care about the non-custodial aspects they care about the fact that it’s a really good investment right so now the company here so we’ll call it real estate corp that issued these tokens to me I put my hundred thousand dollars they issued these tokens to me now they
00:06:34 are managing this company but all this data you’re going to have all this data going in informing what the value is of these particular tokens right and the data is things like the appraisal of the the appraisal of the value of the real estate that we’re sitting on it’s the income right it’s the the occupancy it’s the information maybe about the the city maybe about the economy its the expenses it’s the cap table right all these are going all this data is going into this and because it’s all on chain it’s
00:07:20 transparent so anyone who looks at these tokens can see this is what’s actually happened here’s the actual value of the real estate here’s the income that’s come in minus the expenses here’s a cap table here’s the occupancy based on my algorithm that I can decide here’s how much the this particular investment is worth to me to someone else whom who might be the buyer now the the great part is since everything that went into this investment this LLC has been denoted in this token and including the
00:07:51 regulatory aspects who can buy it who can sell it now if there is a trading agreement if there’s a market that is created to trade these tokens now I can potentially put these tokens up for sale so Adam has these tokens Ron is over here he looks at this at this investment this particular investment he’s been kyc certified right he’s gotten into this marketplace because of the fact that he’s at a credit investor he’s done his kyc now he sees this list of tokens and he goes oh based on all this data
00:08:21 I think these tokens are worth I think these hundred tokens would be worth you $200,000 I think they’re worth double now I can offer mine up I can say look I’m gonna sell 50 of my tokens for $100,000 right double my investment because the value the properties gone up they’ve rarely done what with their income they fixed up the building there they’re making double the rents whatever it might be and Ron might come in here and go look I’m willing to pay that well now my 50 tokens going to Ron for $100,000 I get a hundred thousand which
00:08:56 was my initial investment I’m it’s been made more liquid for me Ron now has 50 tokens I now have 50 tokens the company doesn’t want real-estate Corp they don’t care who owns it because they’re just making distribution payments to the token holders regardless of where the wallet is so the nice thing for them is that they didn’t have to go about valuing it they didn’t have to take their time they didn’t have to repaper they don’t have to know that Ron is the owner instead of me the provenance has
00:09:23 been changed by virtue of the fact that the tokens have moved to a different wallet and money has been exchanged and has probably gone through some sort of exchange some sort of transfer agent that has been denoted and approved by in this case the SEC so what has happened is we’ve gone from a time when the tokens that people were trying to issue security tokens just because it was the cool thing to do is the hot it was piggybacking on the ICO craze and now you’ve gone okay we’re gonna build some
00:09:53 infrastructure we built the these data engines right here to be able to provide this data we’ve built Oracle’s essentially is what this is we built some of these Oracle’s to make sure that these have data that is accurate because that’s what the SEC wants us what regulators want banks investors everyone’s accurate data we built accurate data we have built transfer agents that have been approved by the SEC to be able to transfer the ownership and the provenance that’s kind of what’s happened we’ve understood that this
00:10:26 company because of the fact that they can get accurate data that there’s transfer agents that this can all happen now they have actually had to build real companies and again it doesn’t have to just be real estate you can do bonds you can do private companies you can do hedge funds whatever you want it to be that there is there are so many private assets that can now be denoted on chain again I don’t want it to just be real estate that’s just a really easy case right now if I’m an investor I feel good
00:10:54 about this right because the data is verifiable I can see what it is there’s a secondary market for it so I can get out of this illiquidity and now this is still somewhat liquid but encoded in this token right is the fact that I have it maybe a 12-month lockup period it’s encoded in the fact that Ron has to be an accredited investor right so I don’t have to worry about it rhe Corp doesn’t have to worry about it the transfer agent or the market is kind of taking care of that to know that Ron is accredited therefore if he’s going to
00:11:25 buy it from me I don’t have to approve it I’m outsourcing some of that to them so this infrastructure has been built now the fact that these tokens can be transferred it also means that they can be used as collateral so now I can get a loan against them this was exciting for us a couple years ago but the plumbing in the infrastructure wasn’t all there now it really is so now the fact that I can use it as collateral and get a loan for it opens it up to defy applications right because now I can get a loan it
00:11:57 doesn’t necessarily have to be at a bank it could be in some sort of lending protocol it could be a lending institution it could be a union that’s created online or or created on chain of people to invest or make loans against tokens like this and the reason we can use it as collateral is because I can use my 50 or 100 tokens as collateral knowing full well that if I don’t pay the the interest or if I don’t make my payments or if I don’t pay back the loan the whatever institution whatever group
00:12:27 whatever wallet made the loan to me can actually take my tokens from me and the ownership or the provenance has changed those tokens can be locked in some sort of smart contract that says if I don’t pay they can take those tokens or we can just say if I don’t pay the tokens that recore bar what recore pays to my tokens into my wallet goes straight through to pay the interest on this note we can do all that programmatically and that’s what’s so exciting because it’s opening not only the ability for myself and Ron
00:12:58 to get together and trade or from record to find me and for me to have more confidence to invest in a company like that because it opens up more options and more benefits to me but now you open up a dphi type space right and whether again that’s we looking we talked about chains and can be on a theory Amit can be on tezo’s they can be on Raven coin there are so many others that are developing these systems Al Gore an might be one of them that not only can I denote these security tokens but now there’s a secondary market so if you’re
00:13:30 talking about tezo’s there’s t zero as a secondary market there are d phi applications built on top if it’s a theorem you have some like open finance right that is a secondary market for security tokens and then of course you have all the D Phi applications and you can use those realist those tokens of security tokens as collateral that is what’s so exciting about this we will talk this week not only is is our real-world assets always there not always going to be real estate like this it could be we’re going to talk about
00:14:04 invoices right you can what’s called factor invoices so an invoice can be something that gets put on chain and now a company that looking if they’re going to get payment and we’ll talk about this in a few days but if they’re going to get payment in 30 days for this particular invoice they can sell it to me today for a 5% discount right so if they’re gonna get paid $100,000 in 30 days I might say look I’ll give you $95,000 for that right and they’ll take it because they need to pay their people they need they need to pay some of their
00:14:44 costs they don’t want to wait for that money they’re happy to take that 5% hit to be able to get their money to pay their bills they’re working capital now in 30 days I’ll get $100,000 well I’ve made 5% in only 30 days but on an annualized basis that’s a great rate of return there are people all over the world who have this kind of money that can that can buy these invoices currently the traditional structure it’s just hard to do it’s hard to match those up well in in the in the blockchain world it’ll
00:15:14 be much easier to match those two up so we’ll talk about what some of those protocols are what some of those companies are that are creating that ability on top of invoices now you actually have the ability to tokenize the actual goods or the shipment that is part of the the invoice so now I have the ability to not only to not only factor the invoice and provide funding for it but now if they don’t pay me I can take ownership of the goods like take title of the goods there now now you really have something there because
00:15:43 you’re taking the entire supply chain the the trade finance world and putting it on chain and opening up so many more options services benefits service providers out there so it’s really exciting to talk about tokenizing real world assets we’re going to do that quite a bit we’re going to have several podcasts talking about several videos several guests there are some great products protocols applications block chains out there that we really want to talk about because it’s really exciting because now we’re opening up trillions
00:16:18 and trillions of dollars worth of assets that can now go on chain now we’re not only talking about pure cryptocurrency we’re talking about actual assets and actual investments that people can make in real assets not not cryptocurrency they don’t understand but investments people are already making and now we can add benefits add services at efficiency add transparency immutability all those great things we like about blockchain so that’s what we’re going to talk about this is why it gets us so excited
00:16:48 talking about tokenizing a real-world assets we’re going to talk about the different chains the different data Oracle’s that are out there some of the companies that are doing the tokenization what all is entailed in that what the different regs are between the US and and the rest of the world and and where we’re seeing that going what some of the assets are that actually are being tokenized and we’re really excited to discuss it we hope you enjoyed this we hope you’ll subscribe to the YouTube channel especially so you can see what’s
00:17:17 coming all of our videos we hope you’ll check out our website with our pod on twitter at inter axis eight to the number eight so you can see everything we have going on as it comes out and really come learn about this hit us up if you have any questions and we look forward to seeing you this week and in the next videos you