Asset-backed tokens are digital claims on a physical asset and are backed by that asset.
Asset-backed tokens are digital claims on a physical asset and are backed by that asset. Gold, crude oil, real estate, equity, soybeans or just about any other real, physical asset can be tokenized and become an asset-backed token.
Asset-backed tokens are an evolution made possible by blockchain technology. Bitcoin, of course, was the very first token, but that cryptocurrency is not backed by any physical asset. Since Bitcoin, a lot has changed and today there are thousands of different cryptocurrencies available, from new digital ones to stablecoins pegged to fiat currency. But the cryptocurrency revolution and its volatility has spurred innovations for more stable tokenized assets that are designed to store value and be exchanged between peers without the need for a financial institution to mediate.
The next iteration of cryptocurrency innovations brings this interface into the realm of the practical and the physical, with asset-backed tokens that represent real-world assets. An asset-backed token’s value is directly affected by the worth of its underlying asset, and is generally classified as a security by financial regulators.
Ownership of the token usually represents a right of ownership over the asset and, depending on the asset, may come with the expectation of future returns when the asset appreciates in value. As the asset itself appreciates in value, so does the token.
The development of these tokens also means an individual, company, or other entity can seek investment in exchange for the token, and raise capital through a blockchain-based system, done by issuing asset-backed tokens as new equity instruments, per financial regulations.
Alternatively, businesses could tokenize existing assets for sale. Individual investors, not just wealthy ones, can now buy into real-world business assets without physically storing or exchanging them. This not only reduces trade friction, but also lowers logistics costs. Through asset-backed tokens, transactions can happen faster and more efficiently.
Asset-backed tokens can also solve problems created by inflated or devalued currencies, as well as the unpredictable stock market, giving individuals a reasonable new financial alternative that combines digital liquidity with hard asset values when needed. We are already observing the potential of asset-backed tokens as they gain wider traction across various applications.
Governments are tying crude oil to the value of official digital tokens, and the real-estate market has been slowly moving towards tokenized fractional ownership. Asset-backed tokens are improving liquidity to previously illiquid markets and enabling cost-effective transactions that don’t rey on a central party, and promote both security and transparency. This is having a major impact on the way we all do businesses and think about ownership and wealth creation in the future.
Johannes Schweifer is the CEO of CoreLedger, a company empowering businesses of all sizes to access the benefits of blockchain technology. Schweifer co-founded several blockchain start-ups, including Bitcoin Suisse. He’s a passionate problem solver, holding a master’s degree in chemistry and a PhD in distributed computing and quantum chemistry.