Digital Currency/Stablecoin/Tokenization Series: Quick Glance At The Key Roles Of Tokenized Assets (Security Tokens) In Enterprise

Despite the last year’s downtrend of the cryptocurrencies that must have witnessed nightmare for some traders in the past, we kept reiterating that the buzz world, ‘tokenization mechanism’ is quite different that has been the latest luring factor in investment or financial domain. 

The Security Tokens resembles the conventional financial instruments, like, shares, debentures or units in a collective investment scheme.

Of-late, the segment of exchange tokens lures the shrewd investors with the exponential returns (yields flash in 3 digits in percentage terms).

While the regulators raise a cautionary statement that the token categories are not mutually exclusive, suppose that a token issued as an utility token, can also transform into an exchange token over the timespan. Quite a few tech-savvies perceive this property of tokenization mechanism as an apprehensive thing to consider.

While the traditional databases serve their purpose and are not necessarily inferior to blockchains for storing data. So why would institutions or corporations be interested in implementing a token on a blockchain? We list out some key features of tokens as follows that the prudent investor needs ponder upon:

1. Tokens that represent a claim on an underlying asset, for instance, the precious metals held by a custodian.

2. Tokens that represent a claim against or interest in an entity, e.g. a bond or share’s value is derived from the credit and of the company standing behind it.

3. Security tokens make traditionally illiquid assets on company balance sheets (e.g. property) more liquid. 

4. Investment in an asset which price is derived from supply and demand or scarcity, such as Bitcoin.