The Rise of Security Tokens and the Hypertokenization of Everything

Avem
4 min readFeb 9, 2023

For many, it is still unthinkable, but with the advent of web3 comes a change in many processes. In that new era, if you want to raise investments or just invest in whatever, you will have to perform it through the blockchain.

If you have young children, then you know that in the gaming scene, the use of tokens is quite normal. So for the youngest generations, the transition will be very smooth. For let’s say millennials and everything above that, this will take quite a bit of energy. If you play the — now still — regular games and buy something there with tokens, then it’s still like that for the gaming experience, but otherwise worthless. With games on the blockchain, this is completely different. Everything has value because what you invest with tokens, is immediately an asset that you can trade on a marketplace.

The total market value of play-to-earn gaming was already $90 billion in 2020 and is now skyrocketing to a projected $257 billion in 2025. Yet the gaming story is only the beginning of the hyper tokenization of everything.

Why is tokenization good?

Tokenization can be realized on all fronts, with several benefits standing out. The list is long, but let’s look at some key benefits:

  • Reduced costs, thanks to transparency and automation by working on the blockchain. Costs can be reduced by as much as 90%, in the case of bonds, due to the trustlessness principle. There will also be a significant drop in prices (up to 40%) in other ways, such as fundraising. This will make it attractive for both consumers and institutional investors to do business;
  • Eliminating intermediaries from processes eliminates the need for middlemen, significantly reducing the length of processes;
  • Improved liquidity is an important factor. By making tokenization accessible, some $4 trillion in private equity funds are unlocked. Not to mention the money tied up in bricks.

These illiquid assets are not yet fractionalizable, making it virtually impossible to split, divide or transfer ownership. We’re talking about real estate, precious wines, art, and intellectual property, among other things. Imagine what a difference it would make if you could make these assets liquid and fractionate them; it would change the entire playing field!

Of course, this is only feasible, if we proceed to a hyper-tokenization of the financial market so that we can split properties and distribute them widely.

The rise of security tokens

Let’s take a specific look at the world of security tokens: the bridge between the traditional financial sector and DeFi. Security tokens are here to shake the financial market to its foundations. Management, distribution; nothing will be as it was. And while many will think back fondly to those “good old days,” for users it will bring only positive experiences.

Financial systems will become more efficient and ensure that dividend payments are transferred in seconds, using smart contracts as a basis, of course. The content of the products will remain the same as in the present day, only the technology behind them will change. This makes it possible to switch quickly and upgrade relevant laws and regulations accordingly.

Types of security tokens

In a nutshell, we will go through the different types of security tokens so that the impact of tokenization becomes clear once again.

Listed and unlisted equity

Tokenized-based solutions for listed and unlisted equity are quite the new kid on the block. It’s important for the financial market to innovate because otherwise they stay behind when Web3 is entering the building. Startups, investors, and consumers of this upcoming generation will benefit from access to liquidity and transparency, all reached in the blink of an eye.

Bonds

Security tokens bring us closer to a digital barter economy. Bonds, fortunately for us, are easily traded online, which makes this way of investing your money a lot more accessible. A security token as we know it does not represent the value of the bond itself, it is merely the digital representation of the security itself. This significantly lowers the risk of fraud, because if you don’t actually own the asset, then you’re not on the whitelist.

Home equity

The future of loans and mortgages is entirely tied to the use of blockchain technology and, of course, security tokens. When real estate is tokenized, the value of the collateral can be represented by a security token. By tokenizing the real estate market, we open doors to higher participation and the possibility of fractional ownership.

Investment funds

When you want to invest in funds, there is usually an extensive process that is mandatory to go through before you can start investing. By tokenizing the shares, businesses allow their users to trade freely. Lowering barriers is also always a great benefit of working on the blockchain. Before we get to where we need to be, it is essential to enable automation and ultimately bring liquidity to the stock market.

Insurance policies

Blockchain-based insurance platforms are of course all about tokenization, as tokens are needed to enable insurance based on smart contracts. Each security token will represent an investment in the insurance industry. These investments will be used by insurance platforms to offer insurance products.

No doubt you can think of many more, but we must leave room to write about them in the future. Avem contributes to and believes in the token economy. When traditional assets incorporated into blockchain, such as stocks, bonds, and real estate, our ecosystem will stand out.

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