What if you could potentially buy a Picasso painting or even a New York skyscraper just by sipping coffee and scrolling through your phone? Sounds like a fantasy, doesn’t it? Well, with tokenization, this magic can actually become reality. With the U.S. regulations set for 2025, there is bound to be an explosion of tokenized digital assets in the cryptocurrency realm. Let’s see what this means in detail.
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What’s New in Cryptocurrency Activity in the U.S.?
The U.S. appears to be closing in on the crypto hype, and it is most definitely good news! These are the two laws that will become relevant shortly.
One is pegged to stablecoins, which are a type of digital currency that manages to stay within certain price ranges. The another will seek to consolidate different types of digital assets under one umbrella for the benefit of investors.
This is why it matters: it’s like being on a rollercoaster — there are thrilling parts, but also breathtaking ones. These laws are also coming down from the SEC and CFTC and should help rationalize that unpredictability. This is undoubtedly better than living a life filled with fear, especially when it comes to tokenization.
What Is Tokenization?
Tokenization is a concept that is akin to dividing a large pie – a one million dollar house for instance – into smaller pieces that are called tokens and saving these pieces in a blockchain. If, for example, a property worth $100,000 can be split into 100,000 tokens, each valued at $1, it is possible to own a 0.05% stake by purchasing 50 tokens and thereby earning a portion of rent money the property generates. Rather than moving in, tokenization enables one to invest in real assets with a token – how cool is that? So simple yet mind-boggling at the same time.
A More Amazing Illustration: RealT
RealT is perhaps the most tokenized example that enables users to buy fractional ownership on real estate through tokenized assets. So imagine a building valued at $1 million which can be tokenized and split into 1,000 tokens, each valued at a $1,000. The investor then purchases the tokens to stake their worth on the property.
Now each holder gets paid in crypto directly and every month if that property earns $10,000 rent, the $10,000 gets allocating to the token holders proportionally per their stake. This model opens the doors of investment to a wider range of people enabling them to invest without the chest full of fortune.
Three Types of Tokens (Explained Simply)
As new regulations come into place, tokens may be divided into three categories: Here is a brief description:
1. Real-World Asset Tokens
What They Are: RWA Token is a token associated with physical properties such as a real estate or business. Consider these digital stocks.
Example: Purchasing a token linked to a beach house which generates rental revenue. These may be overseen by the SEC like stocks so that investors are protected.
2. Utility Tokens
What They Are: This type of token serves as an entry pass to a certain service or application without any revenue sharing.
Example: A token meant for subscription services or gaming platforms. If these are issued on a blockchain, the CFTC could potentially view them as ‘digital commodities’ and thus imposing light regulations.
3. Fractional NFTs (Collectibles)
What They Are: Tokens that give the right of partial ownership of certain unique items such as pieces of art and other valuables.
Example: A painting worth a million dollars split into one thousand tokens. Each token represents a share of the artwork.
Why is this a Big Deal?
It is not the first time someone has real estate tokenized, as companies such as RealT have already leased tokenized property, but there is speculation it could be more widespread due to upcoming regulations in the U.S. Imagine regular people having a stake in famous buildings or songs. Businessman David Sacks hints that this change gives access to the middle class to what was previously only available to the upper class.
What Could Go Wrong? (The Risks)
Let’s be frank, it would be disingenuous to not acknowledge the risks:
- Corporate Governance: The SEC might have to intervene because a certain company has too much control.
- Security Issues: The blockchain is secure, but its surrounding applications could get hacked.
- Political Risk: Clearly defined rules are not available and this poses issues for investors.
