We often hear influencers like Anthony Pompliano speak about how tokenization of assets on a blockchain is inevitable. Although real-world assets have some complicated trade-offs involved, this is undoubtedly a supreme use case for blockchain to coordinate economic activity in a trustless, efficient manner.
Tokenization is already a reality. Bitcoin is a tokenized version of money. A Maker Protocol CDP is a tokenized debt obligation. XRP from Ripple is a tokenized version of a bridge currency to convert one asset to another. And taking this into account, some people are of the opinion that tokenizing real-world assets is going to be a meticulous task; almost impossible.
Well, in all honesty, meticulous? Yes, definitely. Impossible? No, definitely not. We already have so many companies tokenizing real estate on Ethereum and Tezos. RealT, a Michigan-based company, is tokenizing individual houses on Ethereum. People can invest in property tokens to expose themselves to capital appreciation (or loss) as well as monthly rental income from the tenants. Sounds sweet, but the backend process is cumbersome. It isn’t as easy as going to MetaMask and creating your own ERC token. RealT property tokenization is set up by giving a newly formed LLC ownership of the property and giving investors tokenized securities in the LLC.
In the future, the process may stay just as cumbersome, but it would still be worth all the hassle given the benefits it brings to the market. Property investments become liquid and the usual investment constraints in real estate, such as the need for a large amount of capital, are eradicated.
Other commodities would likely see a similar set up for tokenization. But this isn’t the real problem. The real problem emerges when legal disputes arise. For example, judiciary rules are different from country to country and from jurisdiction to jurisdiction. One saving grace is that using the RealT model, the tokenized securities are for the LLC, and the LLC is the ultimate owner of the property. But there may be issues with regard to recognizing token owners as the owners of the LLC given the legality of recognizing Ethereum as a legitimate issuance mechanism.
So yes, the problems are plentiful and a lot of work has to be done. But imagine a tokenized future where you can take a loan against just half your house, or finding a seller for your car over the free market with ownership transferred over a blockchain. The solutions to tokenization are young and will most certainly blossom into something much more sustainable. At the moment, it hasn’t picked up much traction outside property, but I believe this situation will be far, far different 5 years from now.
Tokenized stocks, bonds, houses, vehicles, and any other ownership certificates will make life easier and access to financial services far more wide-reaching than it is today.