Asset backed tokens
The term, asset-backed token (ABT) speaks for itself, it’s where the storage, value, and management of an asset is transferred and represented by digital tokens on the blockchain. The tokenization of an asset doesn’t affect the physical asset itself, it changes the way ownership and transfer of value of that asset is managed. ABT’s are essentially tradable IOU tokens that represents the full value and ownership of the real-world asset that it corresponds to. These tokens can be purchased, traded, and held exactly like any traditional asset, just digitally.
Advantages of asset backed tokens
The raw concept of digitalised assets isn’t all that new, the financial industry has been digitally trading digital assets such as equity in a company or commodities such as silver in the form of securities, ETF’s, options, or futures on centralised trading platforms decades.
ABT will ultimately cause traditional platforms like these become obsolete as a token transaction on a peer to peer network completely eliminates the need of a intermediary. This not only makes the entire process quicker, safer and easier, it also greatly reduces unnecessary labour costs. ABT provide many game changing advantages over traditional systems that are bound to have revolutionary impacts on the global financial ecosystem. Some of these include:
- Liquidity – One of the main advantages of tokenized assets is that tokens are highly divisible meaning that assets can simply be simply divided and distributed to the technical capabilities of the token. This is especially beneficial for non-liquid assets such as cars or property as it’s easy to buy half a token, but I’ve never heard of someone buying half a car or house.
- Security & Trust – Users can have full trust the platforms built on the immutable blockchain as that there’s no possibility intervention from central authorities or traditional issues caused by human error. The only entity users will have to trust is centralised issuers.
- Stability – Some assets such as gold, equities, bonds, property, rare coins, and diamonds are reputable for their stability in price. Such tokenized assets can be utilised to hedge against the volatile markets or against depreciating fiat currencies to preserve spending power.
- Proof of ownership – An ABT gives the owner undeniable proof of ownership the asset that the token is correlated with, even more so than traditional asset ownership. The digital proof is immutable and cannot be duplicated, altered, seized or destroyed like paper can.
- Lower costs – Automated platforms built on the blockchain eliminates the need for third party processes such as brokers, transfer agents, registrars, clearing firms, custodians etc. drastically decreasing transaction costs.
- Real time settlements – Old systems dealing digital asset transactions such as securities, ETFs, and futures cost investors a lot of time as they were required to go through several processes (as mentioned above) per transaction. Blockchain transactions are automatic and can be settled almost instantaneously anywhere on the globe.
- Convenience – Transfer of value through tokenized assets is much more efficient than physical asset transactions, especially for large industrial transactions such as 1,000 barrels of oil.
- International ownership – International asset ownership has always been possible, but it’s never been as straightforward as holding a digital token.
Examples of assets that can be tokenized
Of which there are very few scaled examples, almost all assets classes can benefit from the unique attributes gained through tokenization. Some of these include:
- Commodities – such as gold, silver, diamonds, oil, wood etc. can all technically be tokenized on the blockchain. These digital tokens are used as an efficient transfer of value and ownership. Some tokens exploit the stable price of commodities such as precious metals to create what is referred to as a ‘stablecoin’. Stablecoins are used as a hedge against volatile markets or inflation, for non-volatile cross-border payments, or as a store of value when raising capital funds such as in ICOs.
- Equity – Tokenized securities such as corporation stocks or bonds opens the market up to the rest of society by removing the need for entry barriers and intermediaries which previously only sophisticated investors chose to deal with. Tokenized Company production is now also a possibility, ZrCoin for example is pegging its token value to the company’s production of industrial materials.
- Intellectual property – Intangible assets with no physical presence such as trade secrets, patents, copyrights, and trademarks can all be easily tokenized. This provides efficient transferable ownership on a transparent system. Joint intellectual property ownership also becomes a easy possibility. A tokenized patent for example could be distributed among all its investors and then the royalties are paid out accordingly to their share of ownership.
- Currencies – Tokens are also being collateralised with fiat currencies. Currently the most popular fiat backed token on the market is Tether which claims to be backed and pegged to USD. As they serve as an effective as a digital store of value these tokens are also categorised as stablecoins.
- Real estate – Property investors can own fractions of property collateralised tokens, regardless of their location globally. Tokenized property on decentralised trading platforms eliminates fees and intermediaries such as agents. The smart contract system can distribute the generated rental income fairly and automatically between the countless owners of the property.
- Debt – Although not technically an asset it’s also worth mentioning that debt collateralised with tokens is something the financial world will greatly benefit from. Bundles of tokenized debt can be sold to investors looking for a specific credit risk and duration.
- Collectables – Physical collectables such as modern arts or classic cars to digital collectables such as Cryptokitties or tradable ‘skins’ within videogames are all being tokenized. Verification on the ledger ensures legitimacy and eliminates any duplicates or fakes to be traded on the market.
All these assets are already heavily traded on the daily. What the blockchain does is make existing supply chain systems within the financial industry dramatically more efficient. These technological advances may sound incremental, but I’d say their as revolutionary as moving from paper letters to email or moving from hand-built cars to Henry Ford’s production line. In both of those cases, a dramatic rise in efficiency leads to extensive market growth.
ABTs will undoubtedly go mainstream as they present superior solutions to traditional systems in almost every aspect.
Out of the all the assets that add value through tokenization as mentioned above, digitalised gold looks to be an absolute game changer carrying the potential to create most value throughout the financial ecosystem.
Where AurusGold fits in
One of the most players that stands out in this young and heavily competed market is AurusGold (AWG). The innovative fintech organisation is in pursuit of creating a globally-viable payment platform through tokenizing gold on the Ethereum blockchain. Each AWG token is fully backed by 1 gram of vault secured gold. The platform also operates a second token (AWX), which represents a revenue sharing stream from their flagship AurusGold (AWG) fees. Users even have the option to exchange their AWG for the corresponding amount physical gold at will.
Aurus leverages the universally recognised price stability of gold to create the most effective ‘stablecoin’ payment solution. The price stability of AWG as a properly gold backed token becomes automatically pegged the market price of gold through arbitrage. If the token price falls below the gold market price users will be incentivised to purchase AWG and vice versa.
AWG eliminates all prior inefficiencies that physical gold carries as a currency as well as resolving the vulnerabilities of current fiat monetary systems. In simple terms, digital gold essentially revitalizes the gold standard, but this time as a global digital currency.
How is AurusGold different?
Out of all the various stablecoin solutions on the market competing to solve the same problem why does AurusGold have more potential than its competitors? As discussed above, there are various assets classes that can be tokenized, each utilising the characteristics of an asset to create value and create use cases in different ways.
To start with, not all assets can be tokenized to function as an effective stablecoin, in fact very few can. The characteristics of an asset heavily influences the overall effectiveness of the corresponding token. Desired characteristics for tokenized assets include; price stability, imperishability, fungibility, divisiblibility, and storability. Out of all asset classes gold along with a few other precious metals carry these characteristics best.
What about diamond backed stablecoins such as Carats?
Some but not all these characteristics are found in diamonds. Diamonds can greatly vary in terms of qualities such as clarity, shape, and size meaning that they aren’t fungible. They cannot be melted down or cut in half without losing value like gold can. Also, diamonds aren’t exactly reputable for their stability in price.
What about Fiat backed stablecoins such as Tether?
Fiat backed tokens such as Tether (USDT) technically carry all the desired characteristics for tokenization so in theory should function effectively as a stablecoin. The problem is that USDT automatically inherits the vulnerabilities of fiat currencies such as centralisation, financial crisis’s, volatility, unpayable national debts, hyperinflation.
Exploring the possibilities of tokenized assets reveals just how many positive opportunities are created across different market sectors, it makes it very clear how revolutionary such a technology is and how it can positively benefit the world. With Aurus we are aiming to be at the forefront of this revolution, bringing value and stability to both the financial and crypto market.