Tokenization

Introduction to Tokenization

Asset tokenization refers to the collective term of converting both physical and non-physical assets into digital ones.

Physical and real-world assets like real estate or luxury items such as art, collectibles or more can be tokenized onto a blockchain. These real-world assets can stem from real-estate, equity, stocks, bonds, and more.

These types of assets pose numerous benefits as per their utility token counterparts. The benefits associated thereof are a reduction in transaction costs, enabling of cross-border settlement, automation, and allowance of the enforcement and restrictions within the underlying technology dissuading the need for legal systems.

Security tokens (see STO’s) allow stranded assets to be liquified and traded in real-time. Real estate is an asset notoriously difficult to extract capital from; you essentially have to either sell the asset or get a bank loan against it. If you securitize such a stranded asset, you can immediately trade it (make the capital flow out of and into it).

Real-time pricing of stranded assets is notoriously difficult to gauge because it’s not like a skyscraper gets bought and sold several times a day so that you can see how much your skyscraper in the neighborhood is worth. So, knowing the true price of stranded assets is difficult. By tokenizing, you sort out the real price.

Standards and Resources

  • FA2 - A standard for a unified token contract interface, supporting a wide range of token types and implementations.

  • NyX Standard: A set of digital contracts standards, designed for issuers and buyers of financial instruments, to be used on the Tezos blockchain.

Benefits of Tokenization on Tezos Institutional-grade smart contracts — Tezos utilizes formal verification, a process that proves the mathematical correctness of the code. The Tezos blockchain allows for the facilitation of formally-verified smart contracts. Essentially, prior to sending $1 billion over the blockchain, one can run a formal test to simulate the transaction and ensure it will execute smoothly. The kind of smart contract language Tezos has built allows one the discipline to mathematically prove a contract (off-chain, during its development) before putting it on-chain. So, formal verification is a practice one does. Other chains, like Cardano, will similarly allow formal verification. So why does Tezos makes such a big deal out of it? Because Tezos aims to be a high-security, high-value chain and wants to make rigor and safety key practices. In other words, formal verification within Tezos strides to be cultural.

Secure custody — Within the Tezos client software, it includes a formally-verified multi-signature contract. This allows for cold-storage deployment and management of smart contracts for the highest level of security. This, when aiming to be a highly complex, high-value blockchain, is crucial in storing and deploying large amounts of capital over the blockchain.

Upgradeability — Tezos features a formal mechanism by which network participants are able to upgrade the protocol through a formal amendment process. Essentially, any of the newest features/tech that emerges can be ported onto the Tezos protocol via on-chain governance. This feature will allow Tezos to last much longer and be able to evolve and continuously adapt to changing times.