What Is An Asset-Backed Token?
An Asset-Backed token is a digital asset that has links with a real-world asset such as company shares, real estate, diamonds, etc.
Asset-Backed tokens are tokens that get their value from the physical assets they represent. Asset-Backed tokens can work in almost every sector of an economy, including agriculture and real estate. Asset tokenization is the process of representing physical assets on a blockchain.
In agriculture, farmers can tokenize assets such as livestock, grains, cassava, etc., for digital trading. By tokenizing their agricultural assets, farmers make trade easy for national and international traders or investors. The constant demand for food anywhere in the world gives agri-backed tokens an edge over other types of assets. Regardless of the economic situation, people must purchase food items. However, despite the high demand, they have their unique challenges. For instance, pests, droughts, or natural disasters can reduce their value or wipe them off entirely.
In real estate, property owners may tokenize their properties as digital security. Owners may record the property’s ownership history, geographical location, and more on the blockchain. A concern with real estate tokens is the dispute that may arise with many people claiming property ownership. For instance, when more than one person owns a property. It would be difficult for a person to sell the real estate without securing the agreement of the others.
Generally, Asset-Backed tokens provide benefits such as:
- Liquidity: Real estate, for instance, is a non-liquid asset because it takes a lot of time to sell. With the help of tokenization, investors and traders can buy it faster.
- Decreased volatility: Many merchants are unwilling to accept cryptocurrency as a medium of payment due to its high volatility. By pegging the value of a coin to a physical asset, it reduces volatility.
- Secured ownership rights: It is impossible to alter the records stored on a blockchain. In countries where corruption is an issue, the use of digital asset ownership serves as irrefutable proof.
Asset-Backed Token Example
Justin is an artist who draws landscape artworks beautifully for a living. However, business is not moving as fast as he hoped. Having learned that people can sell almost any asset in the real world on the blockchain, Justin decides to tokenize some of his works. He is recording more sales in no time because investors from various parts of the world buy his tokens.« Back to Glossary Index