Traditionally, shareholders of certain companies had to undergo rigorous selling and buying procedures before realizing the full returns from their shares. But thanks to blockchain technology, especially the innovation of security tokens, for providing a new way for investors to seamlessly invest in projects through fractional ownership.
Blockchain technology is used to offer digital securities that represent the ownership stake in a real asset or project. These digital securities are easily transferable just like any other cryptocurrency.
The digital tokens can also be offered using a smart contract or through security token offerings, where the holders acquire fractional ownership of the company/project behind the tokens. Asset tokenization has completely revolutionized the traditional shares market.
When an asset is digitized, shareowners can for example use smart contracts to sell their private securities shares on registered exchanges promptly since they have high liquidity, avoiding the long lockup period of capital that is witnessed in the traditional shares markets
Any company can tokenize preferred and common equity. Any individual can also tokenize personal belongings and goods.
Comparison between traditional securities and digitized securities
Traditional securities normally call for larger investments while digitized securities allow fractional ownership which reduces the amount of the required investment.
Additionally, since traditional securities require large investments, access to significant funding can only be done by institutional investors while in digitized securities, since there is fractional ownership, there is a large pool of investors which makes it easy to quickly access significant funding.
Secondly, in traditional securities, the capital is usually tied up especially with private placements like venture capitals. However, with digitized securities investors can sell the tokens at secondary markets where there is high liquidity.
Traditional securities are also too costly due to the high fee structures. But the digitized securities have a low fee structure due to automation using blockchain technology.
Benefits of asset tokenization
Asset tokenization changes how asset ownership is managed and also automates the activities that come after investment.
Blockchain technology makes it possible to have instant, traceable, and cryptographically secure distribution and transfer of digitized assets (tokens) without the need for intermediary parties.
In addition, contrary to the traditional securities, tokens of digitized assets are issued and settled on a blockchain network. Therefore, the transactions are instant and without the need of signing stock certificates. And this process is not time-bound; it can take place 24/7.