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How tokenization can benefit long-term investors

What can be tokenized, and why does it matter?

by Alex Broudy, Technical & Financial Writer
Aug 10, 2022

Today, the Bureau of Labor Statistics announced that inflation slowed to 8.5% in the United States. With inflation still well above 8%, many long-term investors are searching for more meaningful returns in tokenized alternatives. Tokenization makes investing in alternatives like private equity and fine art more efficient, more liquid, and more direct than using traditional methods. And this can benefit investors by saving time and money.

  • What is tokenization and why does it matter? Tokenization is the process of issuing and managing securities such as equity and asset-backed securities on the blockchain. Registering ownership rights on the blockchain enables records to be easily tracked and transferred so fewer parties need to be involved. And the digital-first nature of tokenization democratizes investors' ability to access alternative assets which used to be out of reach. This matters because private markets tend to be illiquid. 
  • How can tokenization benefit long-term investors? Tokenized assets, also known as digital asset securities, offer investors a more efficient and streamlined investing experience. Tokenization makes it possible for both traditional and alternative assets to be transferred directly peer-to-peer and settled instantly. This efficiency helps broaden access to alternative investments so more investors can participate. Over time, lower fees can add up to a lot of potential savings. 
  • What can be tokenized? Any asset has the potential to be tokenized. Legitimate tokenization strategies use traditional securities best practices to ensure that the appropriate filings and procedures are in place such as Know-Your-Customer and Anti-Money Laundering checks. While not all companies offering tokenization services follow these best practices, registered broker-dealers such as Securitize enable and support them. The most popular types of tokenized assets to date have been linked to equity, debt, and asset-backed securities. For example, the digital asset wallet company Exodus tokenized shares of its pre-IPO equity for retail investors using the Reg A+ securities exemption. This led to the first-ever fully-funded $75 million Reg A+ raise closing in just 60 days. Exodus’ tokenized raise not only represented an industry-first but also proved the value proposition of tokenization.

What's Next?

Investors with long-term time horizons should take note. Registering ownership rights on the blockchain enables new types of alternative assets to trade on secondary markets. As more assets get tokenized, a pathway to liquidity opens up for vested security token holders to trade on secondary markets. And with the potential to tokenize any asset - from equity and debt to fine art and copyright - tokenization is in a position to make a big impact for investors exploring alternative assets for the long haul.

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