What are tokenized goods?
Tokenized goods are usually understood as real products (energy resources, agricultural products, precious metals) presented in a "digital" form. The process of transition from a real form to an electronic one is called "tokenization". It consists in the approval of ownership rights to certain goods through tokens in the blockchain environment. Each individual token represents a share of ownership in a real asset, which can reach 100%.
Tokenization modifies the ownership structure of goods, providing users with more opportunities to manage benefits, their divisibility and liquidity. For example, if you have a gold bar worth $100,000, physically dividing it into smaller bars may be a problem. Ultimately, damage to the ingot may lead to a decrease in its market value. If you tokenize it by issuing 100,000 tokens, this will allow investors to exchange ownership shares without the problems of division, logistics and storage of the asset.
Stages of tokenization
Tokenization consists of four stages. They always start with the issue of tokens. This is done on the blockchain, usually with the support of some kind of crypto exchange or a specialized platform. At the second stage, it is necessary to decide how and where the tokens will be stored. It is also necessary to determine who will supervise them: a third party with a good reputation or everything will be implemented through smart contracts.
The third stage is the direct receipt of tokens into circulation. They mostly end up on decentralized exchanges (DEX) and in P2P exchangers. In fact, the concept of tokenization consists precisely in the implementation of the third stage. The fourth stage is the reverse implementation. In general, tokens are only a digital expression of ownership of a particular real asset. Therefore, they can be implemented back at any time and get real physical products.
Varieties of tokenized goods
In theory, anything can be tokenized, but in reality no one does it. Tokenizing an asset with near-zero value for the most part does not make sense. But you will have to spend a lot of effort, energy and resources in this process. Most often, assets that carry real value are tokenized: precious metals, energy resources, agricultural products and real estate.
Precious metals are quite difficult to transport from point "A" to point "B". Any careless action can lead to damage to the same gold or silver valuables. There are also risks of theft. Tokenization solves these issues. In addition, it gives investors more opportunities to invest in protective assets, such as precious metals.
The situation is similar with energy resources. Transportation of the same oil or natural gas is expensive and quite difficult. Investors often do not need it — they are interested in the resale process and the final price, not the actual ownership.
With regard to agriculture, both cereals (wheat, rye) and quite exotic products, such as coffee, can be tokenized. The tokenization process here, firstly, connects the real sector of the economy with the cryptocurrency, and secondly, helps investors diversify their portfolio.
Real estate is quite expensive. Not everyone has the money to buy it completely. Tokenization allows you to purchase a small "piece of cake" from which you can make a good profit.
In addition, there is such a class as cryptocurrencies linked to goods.
Cryptocurrencies linked to goods
Such assets provide relatively high stability compared to classic coins. This is achieved by linking to real goods: gold, oil and others. Their nature is best illustrated by the classic stablecoins associated with the exchange rate of the fiat currency, but in this case, any other underlying assets can determine the value. The physical product is in the hands of a specific organization, which issues tokens tied to a certain share of it.
The prices of the token and the real asset change accordingly. Investing in such cryptocurrencies allows you to combine the advantages of digital products and the traditional market. Examples of coins that are linked to assets are PetroDollar (XPD) and Oil Token (OIL), linked to oil, Tether Gold (XAUT) and Paxos Gold (PAXG), backed by gold. Such crypto assets are not widely popular and in demand on the market: none of them is in the top 100 by capitalization.
Coins linked to real goods can only partially be called "crypto assets", since they all imply a certain degree of centralization. In addition, tokenized goods are not cryptocurrencies linked to real goods. Both classes differ in the purpose of use, the nature of ownership and storage. So, tokenized goods are created for direct ownership, and physical storage of goods is mandatory for them. Cryptocurrencies do not assume this.
Advantages of tokenized goods
The first plus that can be noted is the investment one. Tokenization of goods allows you to increase their liquidity. It reduces the entry barrier, so that more and more potential investors can participate in transactions. The second advantage is an increase in the level of security. Blockchain technology is based on recording and storing information in such a way that it will not be possible to erase the data after it is entered. In addition, the probability of transactions with fake goods is reduced, since each token in the system is unique.
The third advantage is the reduction of time for real estate transactions. This is achieved by getting rid of intermediaries, as well as reducing transaction costs. All transactions are carried out using smart contracts if pre-set conditions are met. The fourth plus is the worldwide distribution of goods that were previously available only in a separate geographical area. Tokenized goods can be owned by anyone who has access to the Internet.
The problems of tokenized goods
The first thing to remember is that transactions with any real goods are regulated at the legislative level. In this regard, it is necessary to tokenize assets within the framework of the rules of a particular jurisdiction. Otherwise, there are risks of fraud and regulatory pressure.
The second problem is the liquidity and depth of the market (a set of buy and sell orders). Although tokenization increases trading opportunities, since it is possible to make transactions with shares of a real asset, it does not completely solve the problem. In any case, the liquidity problem cannot be solved without the participation of institutional and private investors.
For full transparency, it is necessary to develop certain uniform standards. To do this, it is necessary to achieve mutual agreement from various market counterparties. To this end, it is necessary to develop smart contract and data formats in such a way that they are applicable on various trading platforms.
Although the blockchain is immutable and decentralized, the threat of cybercrime remains in tokenized goods. In this regard, it is necessary to pay more attention to security. For example, you should not neglect tools such as two-factor authentication, encryption, or simple monitoring.
Conclusion
Thus, tokenized goods provide quite a lot of opportunities for investors: they remove the need to involve intermediaries, reduce transaction costs, and increase liquidity. However, in 2024, the technology has a number of problems that lie in the legal and technical planes.
This material and the information in it do not constitute an individual or other investment recommendation. The editorial board's opinion may not coincide with the opinions of the author, analytical portals and experts.