What next for crypto and Asset tokenization?


With banks lending from Babylon in 1800 B.C. C., and ‘modern’ banking emerging in the 1470s, banks have not been the fastest innovators.

However, the past 10 years have seen more advanced products and greater adoption of disruptive technology than the previous 100 years, where traditional bricks-and-mortar financial institutions, a large branch network, and limited products have given way to Mobile, agile, multi-currency financial institutions, Internet-powered, global e-banking service providers.

And it’s not just the method of service delivery that has changed so dramatically, but the pace of change, brought on by the inclusive nature and generation of tech-savvy social networks that demand faster, more diverse and secure services.

The demand for data, information and financial services, and the technology to support big data consumption now, has only been made possible by the advent of high-speed networks, smartphones and technology companies, which translate those needs and They allow anyone, anywhere to trade. international stocks, bonds and derivatives, arrange a mortgage, make deposits, trade cryptocurrencies, e-sign and send vital documents, all at the click of a button.

While the last 20 years may be the era of internet banking, 2020 onwards has launched the decade of cryptocurrencies.

As of January 2022, there were roughly 10,000 cryptocurrencies in existence, many created for specific purposes with strong use cases, and others as speculative investment tools with spectacular volatility, few investors, and even less volume.

Always a case of buyer beware, some previous coin offerings experienced bad press through hacking, loss of consumer confidence, lack of activity, price collapse, and where the mere mention of blockchain drove people crazy. the investment community.

And how times have changed, with much more consumer demand, as like stock and bond offerings, new coins are coming to market via initial exchange and security token offerings after due date. extended due diligence by the trading platform.

Much has been written about the volatility of cryptocurrencies, with Bitcoin being a prime example being worth over $67,000 in November 2021 and currently trading around $36,000. However, in the past, equity markets have also they produced spectacular gains and losses, albeit on different timelines and are still considered a safer haven than the crypto markets.

While the Wall Street Crash of 1929 saw significant declines, such as RCA common stock from $505 to $26 and DuPont from $217 to $80), black swan events have also lifted stock markets. For example, Alcoa experienced 12-month returns of 217%, and risk-averse long-term portfolio holders have paid off with Monster, with shares at $2 in 2005 reaching $140 in 2015, and the favorite of the Amazon stock market, with astute investors. buying at USD 2 in the 1990s, where today they trade at USD 3,500. While stocks still represent a more stable investment platform, cryptocurrencies have captured a new imagination with a new demographic.

With an almost bewildering choice of cryptocurrencies, the key issue will be the ability to seamlessly cash in low-volatility, low-value stocks and move in and out of fiat currency to decide which type of currency is best suited to a long-term strategy.

So, with the requirement for a more stable digital crypto instrument, the latest area of ​​investor interest and some may say hype, is asset tokenization. Blockchain technology remains the vital component, mechanism and enabler to support crypto transactions.

Asset tokenization is where digital tokens are used to fractionate ownership of assets. Physical items are mirrored on the blockchain that manages property rights, and anything from property to college degrees and gold to stocks can be tokenized, with more than $500 million worth of real estate already tokenized.

These tokens are created during a so-called STO (Security Token Offering), in which real estate is essentially divided into tradable digital assets stored on a blockchain.

The idea of ​​fractional ownership of real estate is nothing new. Since 1960, REITs (Real Estate Investment Trusts) were introduced in the United States and by pooling investors’ capital, the real estate market suddenly became much more accessible and makes it possible to invest in the underlying asset without having to they buy or manage the entire property.

Fast forward to 2022 and the advent of tokenization, where real estate is broken up into small pieces, namely tokens.

What are the benefits? Global increases in property prices, expensive bank rates, fewer monetization opportunities, languishing assets earning low interest, high property costs with fewer people able to afford current and future prices, all of these can be managed through fractionation and tokenization.

And since digital tokens on a blockchain can be transferred securely and efficiently without intermediaries, trading these asset-backed tokens suddenly becomes much easier and cheaper, leading to increased liquidity.

It’s easy to see why investors of all sizes are excited about this development. With a much lower market entry point with less initial investment, the global real estate market is valued at around $280 trillion, making it one of the largest, least liquid and least transparent markets in the world. And post-pandemic, in an era of rising costs, there are plenty of distressed assets where such an investment approach can provide an economic lifeline for owners and competitive opportunities for smaller investors.

One can almost imagine the scenario in which an investor might be able to buy two tokens on a block or apartments in Chennai, ten tokens on a factory in Malaysia, and three tokens on a flat in Hong Kong, all payable in coins, through a single platform.

Recognizing this opportunity, Euro Exim Bank is investigating the tokenization of such assets and is considering offering several unique currencies, investment-grade instrument-backed assets in an easy-to-trade, blockchain-based token.

While the industry is always looking for the next best thing, we believe tokenization projects will position the bank as the preferred cryptocurrency provider with provenance, security, collateral, and value.

In addition to our strategy on coins and tokens, our journey towards full document and process digitization across the extensive trading ecosystem continues apace.

Our lofty ambitions and aspirations are to be the leading provider of cryptocurrency and trading services across coins and tokens, contributing to a better customer experience with fast cross-border payments, low transaction fees, efficient settlement and platform management, easy access has distributed financial services to the unbanked, ultimately enabling digital financial inclusion.

By Dr. Graham Bright, Head of Compliance and Operations, Euro Exim Bank