Illiquid assets tokenization are difficult to sell for their real value in the short term. Examples of illiquid assets are real estate, works of art, and automobiles. The real estate market in particular is known for the fact that trading in real estate is characterized by long transaction periods and high transaction costs.
The purpose of tokenizing a property is to enable the owner to quickly and easily raise cash at any time by issuing tokens. From the point of view of the token buyer, the advantage of tokenization is that the tokens can be traded directly worldwide on a publicly accessible platform, 24/7.
In the long term, Internet portals will emerge that make tokenized properties from all parts of the world accessible to potential investors. These portals will also simplify the search for tokenized properties and sort them according to comparable criteria. This new technology therefore has the potential to increase real estate prices. The reason for this is that tokenization of a property allows a property owner to easily and easily raise cash, which in turn reduces the cost of illiquidity (Cheng et al., 2013). In addition, this technology enables new markets to be opened up. This aspect as well as the above-mentioned reduction in the costs of illiquidity will increase the willingness of potential property buyers to pay and this should have a positive effect on property values.
The potential of illiquid assets tokenization
The potential of tokenizing illiquid assets is enormous. The estimated value of all real estate worldwide in 2016 alone was around USD 217 trillion.1 However; real estate tokenization is only just beginning. The first object, tokens that were tradable worldwide on a publicly accessible platform immediately after they were issued, was not tokenized until 2019. The Federal Financial Supervisory Authority (BaFin) understands a token to be a digitized form of asset that is assigned a specific function or value.2 a virtual token thus represents something in an organization, in a system or in a network.
This “something” can represent a value, a share, a voting right or some other form of participation. A virtual token can also fulfill several roles at the same time, for example it can embody a share in a network as well as a voting right. The present essay is limited to the virtual representation of a value.
This value can be a share of a property or an entitlement to a share of a property’s cash flow. The term tokenization refers to the process that creates digital tokens. The focus of this article is on the application of tokenization in the real estate sector. To this end, the second section introduces blockchain and tokenization and technology. The third section gives a brief overview of the classification and regulation of tokens. The tokenization of illiquid assets and the benefits of tokenization are discussed in the fourth section.
As digital transformation becomes increasingly critical to the survival of organizations and their ability to adapt to the new, normal post-COVID-19 regulations, further investments in the blockchain could provide an opportunity to enhance the UAE’s financial infrastructure and the world’s existing financial infrastructure improve. In addition, it is critically important to continuously evaluate the emerging technology landscape to identify new opportunities for economic and social advancement, such as a joint report by the Dubai Future Foundation, DFF, and the World Economic Forum’s Fourth Industrial Revolution Center, C4IR UAE, in cooperation with the innovation consultancy and consulting company Accelliance, has revealed.
Tokenization and Digital Assets
The report presented today, entitled “Tokenization and Digital Assets: A Transformative Approach Towards Investments” examines how the transfer of “real” assets to the blockchain (tokenization) in the UAE can increase the accessibility, security, transparency and efficiency of capital markets while the country continues to leverage emerging technology solutions. The document also looks at the cross-industry implications, opportunities and challenges, as well as the actions the UAE should take.
The publication aims to raise awareness of the importance of financial inclusion and improve general safety nets in the country through blockchain mechanisms – tokenization and digital assets.
Mariam Al Muhairi, Project Leader, World Economic Forum Center for the UAE’s Fourth Industrial Revolution, said: “The UAE has faced some of the greatest challenges thanks to the key role the government has played in adopting new technologies and emphasizing the value of innovation in society’s advancement The new report is a testament to the DFF’s efforts to become a test bed for innovative solutions that drive digital transformation in key sectors such as the financial market ”.
She added, “The world is experiencing a leap in productivity and efficiency from digital technologies and the DFF is instrumental in helping the UAE government and private sector perform better in a number of areas.
C4IR UAE surveyed more than 100 industry stakeholders, including startups, digital asset services providers, and municipalities, government agencies and regulators, to understand the current ecosystem and appetite for digital assets in the UAE. In addition, the center conducted over 25 in-depth interviews with key stakeholders from various government, regulatory, operational, technical, and strategic areas to understand how digital assets could impact existing market infrastructure and regulatory policies and what role these stakeholders play in overseeing and managing the development of ecosystems for digital assets.
Respondents expressed confidence that the regulatory guidelines and ecosystem for digital assets in the UAE will be mature in the near future. 81 percent of respondents expect the regulations to be in place within two years, and 78 percent believe that with the right conditions, an initial general introduction could be achieved within four years.
When asked about the cross-industry effects of digital assets, the survey and survey participants named financial services (88 percent of respondents) and real estate (68 percent of respondents) as the two areas that could be hardest hit by tokenization.
In addition, the report’s findings showed that such an ambitious endeavor, to have significant tangible impact, can only be achieved through a concerted effort that requires close cooperation between regulators and supervised entities.
Tokenization could enable the UAE
While C4IR UAE identified several remaining obstacles and prevailing risks to a general roll-out, tokenization could enable the UAE to improve its existing financial infrastructure. In turn, it could also create new opportunities to cement the country’s position as a hub in areas such as capital markets issues, secondary markets for digital assets, and custody services for digital assets.