Decentral Park’s Kelly Ye provides an overview of what tokenization is and how will it affect the investment landscape.
Tokenization - The New Market Infrastructure to Democratize Alternative Investing
You may not have heard of tokenization, but you have probably heard of exchange-traded funds, or ETFs. Since their inception in 1993, ETFs have surpassed traditional mutual funds as the preferred investment vehicle for many investors to access capital markets. The remarkable growth of the ETF lineup has democratized the investment business, providing access to investment strategies and entire asset classes that were historically only available to the largest and most sophisticated investors.
However, there is still a substantial portion of the investment universe that ETFs cannot reach. Alternative investments, such as private equity, private debt and real assets, are typically available only in the form of private funds with constraints on liquidity, investor qualification, and minimum investment thresholds. According to a, institutions on average allocate around 23% to alternatives, while advisors only allocate approximately 6%.
It would be beneficial to have an"ETF"-like structure that offers transparency, liquidity, and efficiency to access these alternative investments - this is where blockchain technology can play a significant role through a process called tokenization. Tokenization involves representing real-world assets, such as private equity, real estate, fine art, commodities, and more, as digital tokens on a blockchain.
Once brought on-chain, tokenized assets can participate in the ”DeFi Flywheel” and create more financialization opportunities. For example, tokenized assets can serve as collateral for borrowing, thus improving the capital efficiency of owning these assets.
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