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9 months ago

ASSET BACKED TOKEN (ABT)

What is an asset backed token (ABT)?

 

An asset backed token is a blockchain token that has a link with an object with economic value. This object could be tangible or intangible. These tokens are of two types, the fungible asset backed tokens, which is also regarded as security tokens and also the non-fungible asset backed token, and it could be used to represent various assets in the real world.

An asset backed token helps to digitize an asset and the information is recorded on a blockchain. An example could be a property to be sold to the public will be digitized instead of the usual paper work.

Then a token will be created in regards to the property and the information of the property will be stored. Information such as the deed, the ownership history of the property, geographical location of the property and more can comfortably be stored with the token. And this asset based token could easily be transferred to whosoever decides to buy the property.

Types of Asset Based Token

 

Even though there are various types of asset based token models in existence, the ERC721 currently the most non-fungible token and it is expected that it will become even more popular as the years goes by even though ERC821 non-fungible token is looking promising as well. But the question that will be on everyone’s mind is why would anyone think of tokenizing a real asset? Some of the benefits are listed below

General benefits of Asset Based Tokens:

Asset backed tokens can provide many benefits including:

·         Liquidity

·         Securitization of assets

·         Ownership rights

·         Decreased volatility of cryptoassets

·         Definable intangible assets

Some of these benefits will be discussed in details, they include

Liquidity

When we talk about liquidity, we are talking about how easily and how quickly a thing or product can be bought or sold and this is in relation to the volume of the trading activity in the market. For example, stocks and bonds can be easily and almost immediately be sold at a market price. Meanwhile, other assets like real estate, cars etc are not sold in such a short time because it has a lower volume of secondary market trading activity.

 

If there is any reason why real world assets would want to be displayed on the blockchain, it is so that its liquidity will increase. Real estate has been known as non-liquid asset because it requires lots of time to sell. People who have tried to sell their cars or houses will attest to the fact that finding a buyer could take a lot of time

Investors are very concerned about liquidity because it determines how fast and efficient they enter and exit the market. And this can also determine how fast things can change. In the year 2008, when the global financial market started experiencing the crash, people who sold their houses or apartment instantly saved hundreds of thousands of dollars.  

When a market becomes liquefied, the value of  the underlying asset will be enhanced because liquidity helps to mitigate some of the risk that accompanies not being able to sell the asset quickly.

Securitization of assets

Not all asset requires joint ownership, some assets requires a primary owner of the underlying asset. For assets that require joint ownership, it could be very difficult to get someone to share ownership of the asset with. But with the use of tokens, there is an increase in the potential for fractional and shared ownership because of the divisibility of tokens. A tokenized patent can easily be divided among the investors and when it comes to sharing the royalties, it will be divided according to each individual’s token ownership. A music artiste for example could tokenize his/her songs and when it is downloaded or played, the royalties would be paid to the artiste, his/her producers and whoever owned a stake in the creation of the song.

Ownership Rights

Everyone will always want to have the right to ownership of their property and even though this is not an issue of debate in countries whose economy is advanced, but in the countries where corrupt practices abound and the economy is less efficient, it is possible for the government to seize people’s property if they don’t have the property deed.

Even in developed countries, seizure of land by the government is still noticed,  but with the use of digital asset ownership, land owners have an undeniable proof of their properties because it can’t be easily destroyed unlike when paper is being used. This is because ownership record cannot be altered by centralized authorities and the government or even bank won’t have the ability to seize digitalize ownership of land or any equipment

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Admin

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