Contributor: CoreLedger goes into the intricacies of tokens in agribusiness and real estate.
Fractionalization allows investors, for example, to engage in revenue participation, meaning that they can buy a token that entitles them to a share of the revenue earned by a company or project, opening up a whole new market for investors internationally.
Any item can be tokenized in its entirety too, giving the token holder full ownership of the asset. Items like agricultural assets can be tokenized for trading and assets like artworks, luxury goods and legal documentation can be tokenized for security and traceability. Once the value is tokenized, it is then stored in a secure digital “safe,” able to be traded or sold at any time to anyone around the world.
As mainstream attention turns towards the blockchain sector, users will be looking for examples of how this technology is actually used everyday. This piece will dive into some of the real use-case examples of tokenization that impact a diverse range of industries, taking this nascent technology beyond the crypto space.
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Agri-Backed Tokens as Stablecoins
Agri-backed tokens also have upside for investors, as well as the farmers seeking relief from inflation. In these economies, many are forced to buy physical assets because the national currency is constantly losing value. Using tokens instead to own stable values might be the best possible alternative, and the ability to simply convert the token back into fiat money means you can liquidate at any point. The fundamental issues of stability and liquidity lacking in cash and stocks are solved for those looking into long term-saving options.
Investors in agribusiness can also be reassured that returns are based on the value of its products, which are universally in demand. The value of food can never go to zero because it is needed constantly. There are still risks like drought, hurricanes or pests, but they will not occur at the same time everywhere on earth, so your risks are relatively contained with simple diversification.
The only regulatory issue to beware of in this instance is tokenizing a currency itself. As long as a user is trading tokenized assets for other tokenized assets or currency proper there are no legal hurdles, meaning that users can sell soybean tokens for fiat or other tokens, but not fiat tokens.
Real Estate and Revenue Share Tokenization
Tokenizing real estate is considered one of the most exciting use cases for blockchain technology as it enables a real estate token to act as a digital security, and greatly lowers the financial barriers to accessing real estate by lowering the price of admission.
However, there is currently much more conversation around its use than there are real use cases — this is because there is currently a misconception that you can tokenize real estate or an asset to distribute ownership.
In reality, this process lacks the proper legal framework necessary in most jurisdictions and owning a fraction of an asset comes with obstacles to the token holder — for example, repair costs, or disputes over whether the collective owners should sell the property.
In addition to quickly raising capital, companies using the revenue participation model benefit in several ways. They can attract investors internationally, fractionalize revenue without any ownership transfer of the asset and can easily administrate multiple small investments with cost effective payouts.
The revenue participation model has multiple use cases, including real estate, agribusiness and industrial projects. Bitcoin mining is another example where investors can choose to access part of the reward revenue via a revenue-participation model.
Land Registration and Documentation Tokenization
In principle, land registries simply need to maintain records of land and real estate ownership, recording changes of possession as they happen over the years. It sounds like a simple enough task, but it comes with a myriad of challenges.
The simple implementation of a blockchain-based land registry could enable the ownership documents to be recorded and assigned to the owner’s user account. If there are structural changes to the building, these can be added to the blockchain, and if the property is sold, all the relevant documentation can be transferred to the new owner. Every transaction is traceable, timestamped and indisputable.
Used in this way, blockchain could provide a highly secure and mobile record of ownership that cannot be manipulated. In contrast to storage on a central server or a central archive, which — if lost — means the end to all claims, blockchain allows information to survive any disaster. The entire archive doesn’t have to be stored on the blockchain for this to be effective. It is enough for one document to go on the blockchain and act as a document “fingerprint” to be replicated all over the world.
With this fingerprint, any copy of the data can be validated and unambiguously found to be “real” or “fake.” A single surviving genuine document allows for the verification of all claims.
Additionally, the end-to-end encryption of sensitive records and ability to tokenize these records enables the tokenization of accessing rights via access token. This token can be attached to the land registry, and the owner is in control to grant access to authorized parties.
For example, if an owner wants to take out a mortgage on the property, they can grant access rights to non-public data on the mortgage company, which would be possible whenever necessary, unconstrained by office working hours. No paper-based system can provide such flexibility, resilience and durability.