Last week Binance launched their “Stock Tokens” allowing users to buy tokens representing stocks via its exchange. Launching with Tesla stock tokens, skeptics are wondering what added value this new product brings, since many of Binance’s users likely already use zero-commission stock trading apps.
Besides such apps not being accessible everywhere in the world, there is something bigger going on here. We believe tokenised stocks are simply the beginning of a huge and irreversible trend. New companies and technologies are popping up around the world tokenising both financial and traditionally non-financial instruments and one of the biggest exchanges getting in on the action means interest will only grow. The implications could be significant, generating value for investors, creators and asset owners alike.
To start with, tokenisation of illiquid physical assets has perhaps been the most talked about use case over the past few years. Be it art, real estate, or in case of Koia: collectibles. While several companies are making headway in this space - think of RealT with their fractional real estate tokens - this movement is only just getting started. Considering the global value of the art, real estate or collectibles industry, the amount traded via tokens is still negligible.
This is a missed opportunity, as tokenisation could bring benefits to all parties involved: investors can get started with smaller amounts via fractionalisation, tokens can be traded on an exchange for increased liquidity, and asset owners or creators can retain an ownership stake in their assets to benefit from any future price increases while getting some liquidity today. Imagine an asset owner being able to tokenise and monetise their high-value assets as easily as selling items on eBay or monetising their home via AirBnB. There are still a few challenges in tokenisation physical assets holding us back, but as these hurdles will be overcome over the next few years. tokenisation of assets poses an unprecedented opportunity to democratise access to many new asset classes.
Beyond physical assets where value is largely derived from capital appreciation, we’re also seeing cases where assets providing potential income streams are being tokenised. While not all built on the blockchain, several platforms allowing retail investors to get access to music royalties have popped up in recent years, as well as platforms to get exposure to natural resources like farmland and forests or infrastructure such as solar farms. These income-generating assets have been part of institutional portfolios for years, but given the difficulties in sourcing the right deals, high amounts of capital required to invest and perhaps having to make an investment in an unfamiliar jurisdiction have made these types of assets out of reach for private investors thus far.
Aside from the income-generating assets already typically seen in institutional portfolios, some platforms are experimenting and going a step further, for example, tokenising entrepreneurs or celebrities and letting backers share in an individual’s future revenue streams. Some are speculating that we will soon see companies and influencers move to “Initial Brand Offerings” fractionalizing ownership of image rights.
Another development in the cryptosphere related to the world of tokenisation are synthetic assets, such as those promoted by the Mirror Protocol and Synthetix. In case of synthetic assets, users can mint tokens that track the price of an underlying asset, without anyone actually owning the asset.
Users are required to put up more collateral than is the current market value of the underlying asset if they want to mint tokens to absorb price shocks. Using Mirror, for instance, the collateralisation rate is 150% in stablecoins or 200% in assets issued on Mirror; if stock X is reported to be trading at $100, minting 1 mX would require at least $150 in stablecoin. If the asset goes up in value and the collateral is no longer sufficient, users would need to top up their collateral or burn tokens. Users around the world are able to participate and benefit from the upside, which like when using Binance’s stock tokens is especially useful in cases where access to US equities and zero-commission or fractional stock trading apps aren’t as easily available. As there is no underlying asset, synthetic tokens may face more challenges compared with asset-backed tokens in winning trust and explaining their concept to a wider audience.
With the news of Binance moving into the space of tokenised stocks, we expect that audiences around the world will get more familiar and comfortable with the concept of tokens representing a wide range of assets and cryptocurrency becoming ever more ingrained in people’s daily and financial lives. And that’s in the interest of us all: investors, asset owners and creators stand to benefit from a world where any asset can be easily and reliably tokenised.
At Koia, we allow you to start investing in tangible assets for as little as €50, via fractional investing. Our experts make sure to source and buy the best assets, and we take care of authentication, storage and insurance. All of the benefits, with none of the hassle.
The articles and information made available on Koia are provided for information and educational purposes only and do not constitute financial advice. You are advised to consult with an independent financial advisor for advice on your specific circumstances.