Tokenization is not a recent issue, this topic has been around the market for at least 10 years, but always in the form of a promise for the future. So, why is this topic “promoting” these days? Although it is not easy to predict when, some “hows” are being drawn so that the trading and sale of financial assets in token format leaves the imagination and becomes real.
Tokenization, as the name suggests, is to transform any type of asset into tokens, whether real (real estate, stock, among others), or financial (regulated by the capital market).
Just like artificial intelligence (AI), which until a few years ago was just a promise, emerging in futuristic blockbusters, and is now something much more tangible, tokenization is now advanced enough to be taken to a test environment, and that technology is the blockchain network.
Big players’ bet
One of the leading financial market infrastructure companies is “eyeing” this technology. Recently, B3 CEO Gilson Finkelsztain pointed out that the company may start using blockchain to tokenize physical assets.
Another example is the Regulatory Sandbox of the Brazilian Securities Commission (CVM), which promotes the acceleration of startups in a controlled environment in search of innovations outside of regulations. Thanks to a partnership between fintech Vórtx and the holding QR Capital, tests are being carried out to regulate the first tokens in the capital market in this sandbox, all using blockchain.
In theory, it is possible to transform any asset into a token, whether real or financial. And the “means to an end” when we talk about tokenization is this technology that allows the exchange of information in a decentralized way, in which all network participants guarantee the veracity of terms and conditions. Since its inception (in mid-2008) until today, the blockchain is fraud proof. As there is no fraud, there is no questioning of trust.
A central issue when we talk about credit is trust, which is very much based on reputation, history and law enforcement — a measure of compliance with laws and punishment of those who breach them.
We have a set of laws that, in order to be applied, need interpretation, that is, it is human practice that makes the law take effect. When we translate code to blockchain, it’s the one that makes the operation unquestionably. A spreadsheet operated by one person might be questionable, a consensus network like the blockchain might not.
Once this is on the blockchain, it doesn’t need anyone else’s endorsement. The rules have been combined, and the representation is correct. Thus, the tokenization of financial assets is a great opportunity for the market, as it eliminates the need for trust and delinks the risk assessment from a centralized and corruptible agent.