Despite significant advancements over the years, investors in the private fund industry still face challenges such as limited liquidity and lack of transparency. The rise of cryptocurrency has brought attention to blockchain-based assets, offering various benefits. One such innovation is tokenization, which records beneficial ownership of securities like real estate or other physical commodities on blockchain technology. This guide will provide an accurate and detailed overview of blockchain tokenization and its benefits.
What is Tokenization?
Tokenization is the process of converting real-world assets into digital tokens that can be managed and recorded on a blockchain. This involves replacing sensitive data with a non-sensitive equivalent (a token), ensuring that the original data remains secure. In the context of blockchain, tokenization refers to the creation of digital tokens that represent ownership rights to real-world assets. These tokens can be bought, sold, and traded on blockchain platforms, enhancing security and accessibility.
Tokenization in Blockchain Technology
The core of asset tokenization is the blockchain technology. In blockchain technology, tokenization refers to converting real-life assets into digital tokens that are managed and recorded on a blockchain. With the tokenization process, the rights of the asset are recorded in a digital token that can be sold, held, and even traded on a blockchain.
Tokenization in blockchain technology is a huge technological innovation in asset management as it has highly reshaped the investment landscape by providing better security and enhanced accessibility.
Benefits of Tokenization
1. Increased Liquidity
Liquidity refers to how easily a property can be bought or sold without affecting its market price. Tokenization facilitates easier and faster selling, buying, and trading of properties, which is done by converting real estate into liquid assets. With tokenization in real estate, the properties are divided into more manageable and small fractions so that they can easily be traded on blockchain platforms. This, as a result, allows easy and swift transactions in a short time period and improves liquidity.
2. Better Transparency
Transparency means disclosing all the necessary information about a property, including legal status, true value, potential issues, etc. With tokenization, all the records, like ownership and transaction information, are recorded on a rigid blockchain ledger, thus reducing disputes and fraud. Since the contract information is embedded in tokens, processes like the distribution of profits and rent collection are automated, which increases the trust between the owner and client.
3. Fractional Ownership Opportunities
Fractional ownership refers to the investor purchasing a fraction or a share of a market asset. With tokenization in real estate, the assets or properties are divided into tokens, thus creating fractional ownership opportunities. These digital tokens can easily be sold, bought, and even traded on the blockchain platforms. With fractional opportunities, the properties are then accessible to a greater range of investors, opening the door to passive income for them.
4. Enhanced Security
Blockchain tokenization has a decentralized nature, which enhances the security of tokenized assets. This is usually because blockchain is immune to tampering, therefore guaranteeing the investors that their holdings and transactions are secured no matter what happens. With traditional real estate, multiple people, like agents and lawyers, are involved. However, tokenization in real estate allows peer-to-peer transactions, reducing the chances of fraud and enhancing security.
Future of Private Lending
Private lending in real estate involves individuals or organizations loaning money to others. According to Preqin, a data provider, total assets of private lending have almost doubled, reaching 1.6 trillion dollars since 2020, while it is predicted a rise may occur to around 2.3 trillion dollars by 2027. With blockchain’s ongoing evolution, the future of private lending is likely to be more inclusive, transparent, accessible, and efficient.
While manual processes were lengthy and had limited accessibility and transparency, the digital revolution marked a huge turning point in the private lending industry. It guarantees the transitioning of private lending from being a financing option to becoming an integral part of the global lending ecosystem.
Blockchain technology is the most impactful technological innovation in the private lending field. Blockchain has set new standards in the private lending industry as it facilitates lending smaller loan amounts to a huge pool of investors. Additionally, blockchain offers many benefits like increased liquidity, risk management, innovative use of smart contracts, and better transparency.
About Raiseli
Raiseli is a private lending investment platform that directly connects borrowers with lenders. The company ensures steady and secure cash flows for investors, borrowers, partners, and issuers. Raiseli has transacted around $1 billion in real estate projects, funding over 1,000 projects.
Raiseli leverages tokenization to fractionalize loans, making commercial real estate more accessible and secure. The platform automates funding processes, providing higher yields for investors and improved transparency and security for all users.
Conclusion
Since early 2023, there has been a significant increase (around 133%) in active private loans. This growth highlights the promising future of private lending on blockchain, driven by tokenization. As technology continues to evolve, tokenization is emerging as a critical component of the financial landscape.r
With Raiseli, both investors and borrowers can enjoy smooth and easy cash flows, gaining direct access to high-yield private credit. By investing billions in the real estate capital stack, Raiseli addresses the needs of borrowers, investors, and service providers in one comprehensive platform.
