There are numerous benefits when it comes to asset fractionalisation for many industries. However, to truly understand the benefits, we first need to go over what asset fractionalisation is and how it actually works.
Let’s dive into everything you need to know about this emerging technology.
Asset Tokenization: Everything You Need to Know
Asset tokenization is essentially a procedure where an issuer can create digital tokens on top of a blockchain network and these can represent digital or physical assets.
The blockchain’s main goal is to guarantee that once someone buys a token that is a representation of an asset, no single authority can essentially erase or change that ownership, which means that the ownership revolving around this is fully immutable.
Let’s take a look at this from the perspective of real estate. Let’s say that there’s a property worth $500,000. Through tokenization, this could be converted to 500,000 tokens, where each one represents a small percentage of the property.
This means that suddenly, 500,000 people would be provided the opportunity to buy a share, or in other words, a fraction of that property. If someone wants to be a full owner of the property, they would need to buy all 500,000 tokens, or in this case, shares in order to have 100% ownership over it.
Fractionalisation Explained
Asset fractionalization is a straightforward process where people will typically indicate which assets they want to fractionalise, which can include art, precious metals, real estate, private equity or debt positions, and so on.
After this, the people in question will typically establish a holding company, which will take ownership of the assets in question.
Then, a security offering contrast is established for the company, and the offering documentation is finalized. Then the company can raise capital from investors, and investors can own a share of the holding company that has access to the underlying asset. This is just one example.
What this essentially means is that fractionalisation is the division of high-value assets into smaller denominations. A high-value asset is transformed into something that can now be an accessible investment opportunity for smaller investors through the process of buying specific tokens in the form of shares. This means that smaller investors can now benefit from the high-value, liquid asset class.
The blockchain network, in this case, is utilized by the asset fractionalisation process to build a secure as well as open platform for value exchange.
Benefits of Asset Fractionalisation
There are numerous benefits associated with asset fractionalisation. Specifically, it democratizes real estate ownership of high value and provides extra investment opportunities for investors.
Additionally, fractionalisation is responsible for bridging formal investments, such as real estate, into existence and putting an end to fraudulent activities. This also results in increased visibility, security, and transparency, due to the fact that all of the transactions and data is recorded on top of the public ledger known as the blockchain, all of which contributes towards a better overall outcome. This is how real estate block chain enhances investments and contributes to fractionalisation.
Moving Forward With Investments
The concept surrounding asset fractionalisation had the ability to completely change the investment system anywhere in the world. Assets that were otherwise unreachable for a lot of people are becoming accessible to anyone. No longer do people need to have $500,000 or even $1,000,000 in order to get into the real-estate space, as they can begin their investments with just $100 to $1,000.
What this means is that these assets, which were illiquid and only available to a handful of people, are now globally available to anyone.
Getting into real estate investments used to be difficult; however, with the power of fractionalized ownership, you can leverage applications such as Propchain today and gain access to this asset class. By diversifying your portfolio and getting access to numerous properties, you can get an average yearly yield of 8% to 12%.
Some of the pros associated with asset fractionalisation include:
- Lower Minimums – one of the most important advantages of fractional investing is that it allows a much bigger group of investors to participate in the process.
- Diversification – You can easily diversify your portfolio and buy a fraction of multiple properties, so if one performs poorly, another can perform exceptionally well and balance things out.
- Hassle-Free Investments – Another key advantage of fractional investing is the fact that you do not have to worry about the hassles involved with buying alternative assets. All you can do is utilize a real estate investment app or an exchange and have this completed within the span of just a few minutes.
- Higher Liquidity – A majority of the fractional investment platforms will offer secondary markets that will allow you to sell your fractions to other users, which can in turn allow you to cash out your real estate acquisitions whenever you want to.
Feeling pumped to start your real estate investing journey? Sign up to Propchain’s waiting list here and be one of the first users of the official Propchain marketplace post-launch!
