Tokenization, Web3.0, Blockchain – maybe these are buzzwords you remember from 2022! But the topic of Tokenization was made popular in panel discussions of World Economic Forum in Davos with the big question if Tokenization can actually solve any real-world problems. Our article will highlight the benefits of Tokens compared to more traditional ESG investment vehicles and opportunities. However, we also show that there is much more that needs to be done, also on the regulatory side to increase the adoption speed of tokens when being active in Sustainable Finance.
Did you know that Pablo Picasso was one of the main accelerators for Tokens? Well, maybe not the artist himself, but Sygnum – the world’s first regulated digital asset bank – did something remarkable. The bank made history by teleporting Picasso’s 1964 masterpiece Fillette au béret – or, at least, its legal ownership rights – onto the blockchain. The digital asset then was divided into 4,000 tokens, which were sold to more than 50 investors at 1,000 Swiss francs ($1,040) apiece. In doing so, Sygnum gave birth to a new genre of investments. Dubbed Art Security Tokens (ASTs), it combines the technological wizardry of blockchain with the legal framework of Swiss banking. But what has this more creative application of tokens have in common with Sustainable Finance you may ask yourself! We will exactly highlight the benefits of the tokens in the next two sections.
First we briefly explain what the core concept of tokenization actually is: Tokenization is the process of converting assets, such as real estate, fine art, or even stocks, into digital tokens that can be traded on blockchain networks. The token represents ownership or a claim on the underlying asset, and the asset can be divided into smaller units, making it easier for a wider range of investors to participate. The digitization of assets through tokenization makes it easier to trade and manage investments, as well as to track the ownership and transfer of assets. In short, tokens are positioned on the same level as conventional securities. They benefit from the above-mentioned potential increases. Asset tokenization has become one of the most prominent use-cases of distributed ledger technologies (DLTs) in financial markets, for assets including securities (e.g. stocks and bonds), commodities (e.g. gold) and other non-financial assets (e.g. real estate).
Tokens do not only make the replacement of conventional securities by blockchain technology possible. Moreover, they can convert any tangible assets into tokens and make them accessible to all investor groups. That’s precisely why we will access the current tokenization market in the next section and dive deeper into three of the most common types of tokens and how they have the power to transform our economies.