An alternative asset in which interests are tokenized, i.e., converted into a sort of digital twin tokens. It belongs to the broader class of alternative digital assets, specifically tokenized alternative assets, and represents an interest in, entitlement to, or claim on, an alternative (or non-security) asset (or claim on the issuing entity for the asset, where applicable), where such representation itself satisfies the definition of such interest, entitlement, or claim under applicable laws. If certain activities are performed on a tokenized non-financial asset, the classification category may change. For example, in the case of tokenized real estate, division into smaller units may convert the alternative digital asset to a financial digital asset.
Tokenization is the process of converting an asset or the ownership rights in an asset to a digital form using blockchain technology. Tokenization involves the creation of a digital representation (token) of a real-world object, such as a shareholding, debt instrument, an artwork, etc. It has gained significant traction within the financial services industry and beyond. Investors show interest in tokenized assets as part of their portfolios and market exposures. This is particularly due to the increasing ability to fractionalize and trade traditionally illiquid asset classes (specifically, real estate (RE), private equity (PE)) on secondary markets. Also, programmability of such assets via smart contracts help automate asset servicing and reduce associated costs. Tokenization of assets also contribute to the creation of new sources of capital- as reflected in the ability to generate assets under management (AUM)/ revenue from certain untapped segments.
As of the time of writing, there is a huge potential for the growth of the tokenized alternative assets market which includes a diverse array of asset classes: real estate, carbon credits, art, commodities, and metals. This reflects the growing interest in fractional ownership models, particularly for illiquid assets, creating more investment opportunities with a more diverse base. The tokenization revolution is redefining the financial landscape and opening up new possibilities for investors and institutions alike.
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