Thanks to ‘blockchain’ technology, savers can access assets with high economic value left out of their spectrum due to their complicated accessibility.
Democratizing Investment Through Tokenization. Blockchain technology represents a profound transformation of many data processes we deal with every day. The way data is transmitted, the speed, storage, processing, and ownership certifications are now facing inescapable improvement and new market mechanisms as regulations change.
Being able to connect data transmissions quickly and securely in very short periods makes it possible for new marketplace concepts to exist. We can transact all types of tangible and intangible assets. As an investor, the obsession to seek and understand how the price of things forms is the key to opening the door to understanding the difference between the value and the price of an asset. It is in that difference where the profitability resides, which is the result of the investment.
Price Formation
The formation of the price depends on many factors, which may be rational or irrational, so we will have to discover in this new marketplace the limits of rationality in the valuation of assets. You can use the blockchain to tokenize or fractionalize holdings to make them accessible to anyone. Today, you can tokenize any asset and claim ownership by creating tokens representing a fraction of that ownership. You can transact these tokens on a blockchain.
Tokenization has its appeal insofar as we can democratize access to investment in assets. Those assets were left out of the spectrum of many investors. This is because of their high economic value or their impossible accessibility. Buying a token of the Eiffel Tower, or a token or fraction of a Ruben painting, is a real possibility and therefore implies an absolute democratization of investment.
If we go further and get into the price formation process of that token, we can find ourselves with the first consequences of democratization. One of them can be the appreciation of an asset due to its public acces. We can eve see surges in the price formation. The feeling of owning a fraction of a unique good raises the price to a valuation never thought of before. Even as long-term investors, we can participate in the beginning of the value formation process. We can access fractions of a lot of talent that in the future may have no value or a value we never thought of.
Tokenization Example
Let’s imagine and hypothesize that we want to tokenize the Santiago Bernabeu as a real estate asset. Real Madrid has been in mid-table for six seasons, and the owner needs to raise money. He considers, with the assembly, the option of selling small pieces of the property. To do so, he issues a token with a definite value. He makes the token available for public trading in a crypto market. Suddenly anyone not only from Madrid, nor from Spain, but from all over the world, can have access to buy a part of the real estate asset where the team with the most followers in the world plays.
Global demand and prices would surge a lot. They would be much higher than the starting price. The democratization of certain types of assets could make investors buy with a very high subjectivization of the value of that asset. You can apply the same reasoning to artworks accessible only to minority groups. All this opens up a new world where data transactions, settlement of money transactions, the registration of property, and the market where people transact them change radically concerning what we know today. We are facing a global and accessible tokenization in the long term. The new situation will cause a continuous debate about price formation.