A New World
3 Ways Fractional Sharable Tradable Digital Assets Will Reshape The World
It's 2030. How you think assets will be owned? Perhaps not all? Fractional? Or will all be sharing? The raise of the internet and smart devises have changed everything, the way we communicate, the way we do business, the way we buy stuff, the way we access the world. Do you think investments in companies or commercial real estate will still happen through a broker? In an office? Signing papers? Or is it possible to buy assets (full or fractions) via an phone app? Pay cross-border within seconds? Settle transactions at near 0 costs?
Weather you believe or not, fact is, assets can now be fractionalized - split in various forms eg 1/2 share of a SME, 1 square meter of land, 1gram of gold. The ownership of these fractions of assets can be securely stored on the Blockchain, and represented by a fungible cryptocurrency token eg 1 gram of gold = 1 token. These tokens are transferable eg can be send easily to another person. The token are easily storable eg in you wallet-app on your phone. Lastly, they are tradable on secondary markets, which enables a new early liquidity not seen in traditional markets....at least not for private company shares or real estate assets.
Digital assets are poised to revolutionize the way people operate and exchange value in the world. Adoption of Distributed Ledger Technology (DLT) such as Blockchain has provided the infrastructure for these new asset-class (digital assets) to exploit innovations, larger investor pools, more opportunities to diversify, early liquidity, to the world of finance.
Digital assets are units of value or ownership stored on a distributed ledger. Stock shares, private equity, property, and nearly any other unit of value can be stored and represented on these ledgers, enabling fractionalization, so everyone can own a small percentage of a larger asset. These truly exciting and innovative technologies will impact our lives and the traditional financial systems.
Democratizing Access To Investments
Traditionally, private capital markets have been exclusive, and disconnected from the majority of people, and have only been available to accredited investors or institutions.
In the US, this only accounts for approx 10% of all households. The other 90% are classified as retail investors and are, by law, not allowed to participate in these deals - financial exclusion.
Now, there are crowd funding platforms for startups, SMEs etc. However, investing in these private equities will likely tie up your capital over a long period. You won't be able to trade on the free market your shares of private companies. This illiquidity can be very daunting if other, better investment opportunities suddenly emerge, or you simply need cash.
Tokenization and digital assets will break down these barriers and create a truly global system, where anyone can invest in any company anywhere on the planet 24/7/365 for very low transaction costs – all with the click on your phone-app - financial inclusion.
Unlocking The Value Of Illiquid Assets
Illiquid assets are any assets that can’t be traded (bought, sold), or transferred easily. Most assets in the world (approx 60%) are currently illiquid or inaccessible. Best example is real estate. Buying or selling a piece of real estate involves a lengthy, complicated, and expensive process that typically requires many external parties, like realtors, lawyers, and title companies to complete. Additionally, you won't be able to buy a 'piece' of a Commercial Real Estate. And, your capital investment is locked-up in an all-or-nothing ownership model.
Digital securities will disrupt this restrictive model. With 'Fractionalization of Everything' by tokenizing the asset you will avoid lengthy paperwork, complex fee structures, and all-or-nothing ownership. Owners will be able to break the larger asset into smaller components and sell off as many of those pieces as they want - unlocking value.
These features have a massive positive impact on society.
For example, a residential apartment building struggling financially. Currently, they have three options: A) sell the property and take a potential loss B) refinance the building, likely on poor terms or C) raise the rent for the tenants, who may not be able to afford the increase and be forced to move.
Fractionalization through digital assets would create an option D) where the building owner can easily sell a fraction of the building's equity to investors who have the funds and see the long-term value. This would create a win-win-win situation where the owner’s immediate financial need is solved, the new investor gets a stake in a promising property, and the building residents remain able to stay in their current homes.
Cutting Out Middlemen & Value Extractors
Imagine you want to wire money from your Singapore account to your US bank account. To start, there is a fee to have a checking account in the first place. The exchange rate you’re quoted isn’t the actual exchange rate, but one boasted with multiple convenience fees. Then, there is a wire transfer fee to actually send the money. A fee to receive the wire on the other end, and the potential for additional unexpected and unexplained fees if the bank uses any intermediary financial institutions to facilitate the transaction.
Trading is no different. Charles Schwab or TD Ameritrade charge around $50 to execute a single fund trade. Broker-assisted trades come with a fee of $25 or higher. Some firms even charge a redemption fee if you sell a mutual fund within 60 to 90 days after opening.
A clear example of a legacy financial system seemingly designed to reward unnecessary middlemen and institutions aimed at extracting value rather than providing it. Now don't get me wrong saying 'unnecessary'... clearly these middlemen have their function, primarily providing security and insurance.
In this not-yet excepted, feared-by-middlemen, new world :) , trades and settlements can be executed permissionless, securely, quickly, cheaply on Distributed Ledger Technology. Being immutable and easily auditable, there is no need for these middlemen. Additionally, most corporate actions can be executed automatically via smart-contracts. Therefore, no need for traditional gatekeepers, unnecessary middlemen or central controlling parties looking to extract value from your transaction.
We can now close the gap for SME financing, we can now allow average-Joe to invest in potential high-growth businesses, we can now trust a currency which is dezentralised, programatic and digital. Emerging markets entrepreneurs will have access to global capital to fund their startups, expanding businesses do not have to take unfavourable loans or hand-over control to PEs.
What do you think how people will invest in the next years?
Sources: Exponential, Uprets, Moonwhale Ventures