Cryptocurrency is like Tesla: industry veterans keep predicting its collapse every day, but it keeps proving them wrong. Even more, it probably makes our world a better place day after day.
If you want to build something big in business, you must think several steps ahead. Although we’re launching crypto-backed loans on demand as our first product, from the very beginning we knew — it’s just a first step.
We have way bigger things in mind here at HODL Finance.
The idea of tokenization is not that new
Tokenization is the process of converting rights to an asset into a digital token on a blockchain, as Nasdaq so simply explains.
Driving force for that is to reap benefits of the two — collect the advantages of cryptocurrency and hold the characteristics of the asset itself.
Tokenization is not such a new term as some might think. It’s just an old practice coming from 1970’s finding it’s path to a new digital economy.
Securitization is the process in which certain types of assets are accumulated so that they can be repackaged into interest-bearing securities.
It is possible to tokenize pretty much any asset. Such assets that are not physical in nature, for instance, trademarks, copyrights, patents etc. are of course way easier to tokenize. Such intangible assets may be also easier to combine with digital blockchain-based systems.
Nevertheless, even tangible assets, such as real estate, art, even expensive wine or champagne, can be tokenized as well.
Champagne tokenized? Why not!
Consider the hypothetical example of John who owns a collection of rare champagne totaling $10M in value. Why? Well because champagne is not only a delicious drink but valuable collectible item too.
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Naturally, champagne is difficult to transport, plus it is fragile thus it requires a certain level of safety and temperature regime. Buyers or investors have to be sure that the product is not forged or damaged during transportation. Bob wouldn’t mind investing several thousand dollars in champagne but doesn’t want to deal with all aforesaid challenges and headaches.
Needless to say, it won’t be effective for Bob to meet John to sell him expensive and rare champagne as an investment. John merely wants an effortless way to divide his champagne stock and sell small pieces of it to a number of investors. Bob, on the other hand, wants to be able to effortlessly trade that ownership of champagne to other people.
Each party is made happy if that expensive champagne stock is tokenized and put on the blockchain. On the blockchain, it represents real-world assets and can be traded freely in the market.
Tokenization market — almost limitless
Most of more than $4oo billion global crypto assets can be used as a collateral to issue crypto-backed loans. Imagine what opportunities lie for tokenized assets market as a whole.
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Picture by Clem Nonjeghuo
The real estate sector is considered to be one of the biggest investable asset classes in the world, with a value of over $200 trillion. If only 1 percent of those assets will be tokenized in the nearest future, it still will conclude an impressive amount of $1 trillion.
Another asset class that is most likely to be tokenized soon is art. For instance, the most expensive painting ever sold — Salvator Mundi — a 600-year-old painting by Leonardo da Vinci, was realized for a remarkable $450 million price.
Tokenization will put most of the assets on the blockchain
So it is very likely that tokenization has a very bright future. But how will it work? We provide a very simple reasoning:
Asset holder wants to get cash but retain its possession as well.
The asset is being tokenized and transferred to the safe custody of HODL Finance or an independent trusted third-party, as collateral.
HODL Finance issues a loan in fiat money (f.e. USD) based on the valuation and liquidity of collateral.
The loan is returned, collateral is returned to the borrower.