基于区块链的真实资产代币化:2018新趋势

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Asset Tokenization Using Blockchain: A New Trend in 2018?

 

 

In the beginning of December 2017, the president of Venezuelan and high-level government officials announced about their plans of issuing “petro” cryptocurrency that will be backed by 5.3 billion barrels of oil worth US$267 billion. Regardless of those news of government-oil backed cryptocurrency coming into reality, it addresses the long-overlooked elephant in the room: real world asset tokenization through blockchain technology. This article discussed feasibility of asset tokenization and provides our prediction on possibility of it becoming a trend for 2018.

 

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Utility of Blockchain technology

Blockchain, the underlying technology of Bitcoin, can be of a high utility for real world asset tokenization thanks to its technical properties: cryptographically secured transactions, distributed ledger technology, smart contracts. The technical specifications of blockchain eliminates the need of (i) intermediaries to execute transactions (self-executed by smart contracts), (ii) the need of intermediaries to keep the record of transactions and facilitate them (transactions are recorded in the ledger), (iii) solves double spending problem (eliminating potential fraud), and (iv) provides a database showing the complete history of ownership. Transactions are stored at a distributed ledger eliminating the possibility of single point failures and unresponsive servers, and the data stored on the blockchain is immutable, complete, transparent, and allows to integrate principles of management into the assets themselves.

Asset tokenization through use of blockchain technology can effectively reduce information asymmetry, decrease the friction to trade and democratize trading system in general, ridding the market from vast bureaucracy and red tape (in traditional markets there is a need to go though know-your-customer (KYC) and compliance checks at each and every opening of an account, signing of contracts, paying of commissions, etc.).

 

Economics of Asset Tokenization

According to Global Wealth Report, total global wealth has now reached USD 280 trillion, it is 27 percent higher than a decade ago, (Credit Suisse Research Institute, 2017 (CSRI)) and much of this wealth is relatively illiquid. One of low liquidity asset’s, such as real estate value alone was estimated at USD 217 trillion where commercial property accounts to roughly USD 54 trillion (25%) a market that is slightly less than all globally traded equities and securitized debt instruments put together (Savills, 2016). If we take the conservative estimation, and assume that commercial estate market has a 10% liquidity premium, then asset tokenization of commercial real estate alone can ambitiously target a USD 5.4 trillion liquidity premium market, which is almost 10x bigger than the market cap of all cryptocurrencies put together. The potential asset backed token market size is much bigger and encompasses different assets such as oil, gold, fiat currencies, diamonds, real estate, shares of companies, artwork, intellectual property etc.

 

A Hypothetical example of asset Tokenization

A young graduate Jane can purchase 10 tokens of a property, of which there are 100 in total. She therefore owns 10% of the house and is entitled to 10% of rental income, dispensed through a smart contract. Jane is also entitled to a 10% voting power on decisions regarding the house, e.g., whether to renovate, through polls cast on dapps (decentralized applications) hosted on the blockchain. Additionally, Tom has the opportunity to capture liquidity premium of his property. If the house has a true value of $1 million, the original owner, Tom, of the house may charge $11,000 for each of the 100 tokens, incorporating a $1,000 premium for the convenience of being able to own a portion of the property. This amounts to a total token value of $1.1 million and a profit for Tom of $100,000. Tom may also sell ownership of only 25% of the house, retaining 75%, to fund the purchase of fractions of other houses. By owning small portions of different properties, Tom diversifies his risk of ownership, can easily transfer the ownership of its assets, and the pool of asset owners are incentivized to bring publicity into the asset to effectively increase its price.

 

Benefits of Asset Tokenization

Tokenization of real assets shall not be overlooked, considering the major effects they can have on asset trading, potentially turning the world into a massive stock market. Some of the benefits are presented below:

  • Asset tokenization enhances liquidity of assets that otherwise have a very low liquidity. (Real estate occupies the largest share of the global asset market and has low liquidity).
  • It allows asset owners to capture liquidity premiums from assets that otherwise, due to low liquidity would not be actively traded. (liquidity is not binary, it is a continuum, and low liquidity or illiquidity means that the assets are expensive to trade (Aswath Damodaran)).
  • Tokenization enables new economic models around asset ownership, such as fractional ownership (investors can own a certain percentage of a certain asset), thus users can purchase one cheap piece rather than an expensive whole.
  • Tokenization through fractional ownership allows diversification of risk arising out of asset ownership (one wholly owned asset can be damaged and lose its value, while fractional ownership allows diversification of risk though owning a part of several assets).
  • Tokenization and ease of transactions eliminate temporal and territorial barriers for asset owners for attracting investments (tokenized securities can be sold globally without territorial restrictions).
  • Asset tokenization effectively reduced entry barriers for trading and investing, by lowering the minimum payment charged for participating in the trading.
  • It enables newer models of raising capital, by allowing projects that are under development to issue shares in form of tokens to finance project development.
  • Enables to utilize network effect for certain products to increase their popularity in the market, by providing direct financial incentive to fractional owners (an influencer that has a fractional ownership of a product, is incentivized to bring further public attention into the asset).
  • Tokenization reduces administrative expenses (excessive documentation), smart contracts execute agreements instantly (improving speed of settlements).
  • Tokenization offers further security advantages. Fears that paper bonds are duplicates are dispelled, because tokens are unique, unable to be imitated, copied or double spent.

Use Cases and Existing projects

Technically speaking there are different categories of assets each of which requires a different procedure and protocol of storing and tokenizing. Such categories of assets are: tangible and non-tangible assets (e.g., gold and copyright), fungible and non-fungible assets (e.g., crude oil and artwork), movable and non-movable property (e.g., cars and real estate). Thus, a trusted party needs to hold the assets and issue them in form of tokens, needs to consider the substance of the assets, their valuation mechanisms, storage capacity, auditability etc. There a number of existing projects that aspire to tokenize real world assets, a sample non-exhaustive list of which is presented below. Some of the projects focus on tokenizing one specific group of assets such as gold (Aurus; Digix; Gold Mint), financial assets (Jibrel Network; Bankex), real estate (Rexmls), securities (Polymath), entertainment rights (Singular DTV), crude oil transactions (IBM/Batixis and Trafigura project), US dollars (Tether), others tokenize a wide range of assets such as stocks, works of art, real estate, rental properties, music, patents etc., (Trust Token; LA Token).

Problems and Challenges

Asset tokenization, however, introduces certain challenges many of which are currently not solved. It is noteworthy considering that there is a big financial incentive for many parties, including governments, to step in for solving them and creating a solid infrastructure to operate asset tokenization and trading. Some of the challenges are discussed below:

  • Trusted issuers- Asset backed tokens for becoming popular among market participants need to be based on the certainty that using the tokens in any future point of the time, the participants can redeem their real-world assets. A real-world widely used example of a platform that has so far not been very successful to do this is Tether. Tether issues 1 USDT token per US dollar deposited, such that the value of the tokens is pegged to the US dollar, providing a stable currency alternative to volatile Bitcoin. With more than 1.4 billion USDT tokens in issuance, Tether has controversially failed to provide audit reports of the corresponding real-world assets. In this case, a bank account which contains 1.4 Billion US dollars could solve the conspiracy around the tether. The Tether example illustrates that even the backing of a well trusted exchange platform, Bitfinex, that owns a majority share in it is not enough for being fully trusted by community.
  • Regulatory Vacuum- platforms that allow asset tokenization introduce certain risks for customers and qualified investors that intend to trade in those platforms. Currently there is regulatory vacuum over a big number of questions of how will this space shall be regulated. We predict that sooner rather than later the governments will step in for regulating this area.
  • Legal enforceability of property rights- The next issue is the closely related one of legal enforceability of property rights. The fundamental question is whether owning tokens confers ownership over the corresponding asset. Does the token holder therefore have a right to recover damages if the asset does not really exist, and who shall be liable in this kind of circumstances.
  • Digital identity and KYC/AML- Digital identity marketplace needs to be integrated into the tokenization platforms that meet the stringent standards of biggest regulatory bodies, such as SEC.
  • Technical Infrastructure – Tokenization platforms need to create security and safety standards for ensuring that tokens stay linked with their real-world assets.
  • Asset valuations and rating – Tokenization of assets creates a high level of liquidity, that many of the token traders will not have much knowledge about the assets they possess, the quality of those assets and risks associated with them. There is a need of trusted intermediaries and oracles to provide such valuation and rating data on asset backed tokens.

 

Conclusion

Tokenization stands to bring massive opportunities for growth and diversification to the asset market. Many of these derive from blockchain technologies democratizing asset ownership and replacing expensive intermediaries. However, the technology is still new and many legal questions remain unanswered. Considering the rapid development of the field, the number of projects that try to tackle the raised issues, and the governments, such as Venezuela, stepping in for reinforcing trust, it is very likely that in 2018 we will see major breakthroughs in this area.

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