DeFi plus asset tokenization — a new DeFinition of investing
Nowadays, it is possible to use real-world assets as security in DeFi protocols. What if these real-world assets were transferred into the crypto world using tokenization? Does it have any practical application?
In recent years, tokenization has revolutionized the approach to investment among traditional players in financial markets. We have seen numerous tries to bring real-world assets to the crypto market. We have also seen a lot of scams and projects that wrongly interpreted a process called tokenization.
We can say that tokenization is nothing but a model for transferring real-world assets to the crypto market.
You’ve probably heard how anything can be tokenized — land in Tuscany, collectible cars, or solar energy to the crypto market. And there were so many projects that promised to change the way we invest in assets. Nothing easier! Today you can turn them into digital assets with just a few clicks.
Why didn’t these offerings manage to gain mass adoption? While the concept of tokenization promises a better and cheaper way to raise funds for issuers, many problems limit transparency.
The great advantage of tokenization is that it improves the current processes of fundraising by companies and passive multiplication of capital by investors, who thus diversify their investment portfolios.
The main issue related to massive adoption those tokenized assets is an absence of publicly available sources for pricing main assets for example price of whisky. This relates to the lack of transparency and the need to rely on a centralized party (valuation firms etc.) to determine the price of the asset. Currently there is no mechanism to monitor the pricing in real-time (as it is done, for instance, when using crypto as collateral). Those assets are generally illiquid; they are not commonly traded.
There is no doubt that some of those assets could be insured. And again, the insurance process lacks transparency and lives completely off-blockchain.
WHAT will they say about it DECENTRALIZED finances?
DeFi gives unlimited access to financial services while ensuring the transparency of transactions and reducing the number of intermediaries and the costs of using the products offered. With DeFi, you can perform the same operations as those handled by banks — earn interest, take out loans, and even make them.
So what happens if we combine tokenization with decentralized finance? Here a wide range of almost never-ending possibilities opens up. You can create a bridge between the benefits of tokenization, with the ease of multiplying capital through DeFi.
You probably would like to see it in a specific example? Why not! By participating in the model combining DeFi and tokenization, you can earn by granting loans in cryptocurrencies or tokens. Such loans are secured by real assets transferred to the digital register in the tokenization process.
So, what is the value of combining tokenization and DeFi?
Ideally, the combination of the two models should meet several criteria. First of all, the principles on which investors will earn must be transparent while their income can be distributed through the Proof-of-Stake protocol. To generate a steady income, which will be distributed among the staking entities. We take care to ensure that the assets that generate it are as little unstable as possible.
A very important subtract in DeFi is the fact that the community decides on all key matters. Relating to the development of the protocol and its economic stability, including the selection of assets that may be admitted as collateral for high-risk projects.
The model constructed in this way ensures the stability of investments and enables the multiplication of capital while maintaining the decision-making and agency of community members.