Due to its infancy and industry-related events in the news, the narratives surrounding blockchain and cryptocurrencies are sometimes shaped as being at odds with the regulations of certain countries.
However, many blockchain companies and industry thought leaders have been engaging with regulators to broaden awareness and education about the benefits of blockchain technology for some time.
As decentralized blockchains offer enhanced transparency and the ability to track assets and transaction data in real time, regulatory frameworks surrounding cryptocurrencies and digital tokens are being more heavily discussed in some countries.
Within blockchain, there is now heightened interest in asset tokenization, which enables businesses and individuals to take assets such as real estate, stocks, commodities, currencies, content, etc., and represent them as digital tokens. This would enable greater liquidity and market reach of the asset, enhance transparency and accountability, and more.
Since this would involve many kinds of traditional assets and stakeholders, clear regulations would need to be established before tokenization could significantly expand in adoption.
Let’s discuss more about the role of regulations in tokenization and how NMKR, a tokenization service leveraging the Cardano blockchain, is planning for a new platform called finest to bridge asset tokenization and regulations.
Many believe that asset tokenization is primed to be one of the next biggest use cases for blockchain technology, including BlackRock CEO Larry Fink who commented that tokenization will be the “next generation for markets.”
Indeed, today the total market capitalization for this category stands at approximately $90 billion, most of which is accounted for by fiat-backed stablecoins.
Related reading:
- How big can the asset tokenization market become?
- Asset tokenization 101
- Real use case study: Tokenization of diamonds
Boston Consulting Group forecasts that the market for tokenized assets could expand exponentially to $11 trillion by 2030.
With so much potential for increased demand in this small, but growing market sector of blockchain, many businesses and projects are looking to build asset tokenization products & services for different consumers.
For example, some companies and individuals might look to invest in various real-world assets but may need help due to their geographical location or other administrative issues. Some professional traders may also want to implement alternative, complex trading strategies.
In both cases, the real-world assets offered as digital tokens on a decentralized blockchain ledger are what is important to them, rather than the technical nature of how an asset is tokenized.
Tokenized real-world assets are not complex from a technological perspective. In most cases, an NFT minting smart contract and the asset information in the token metadata are most needed to issue a token.
Usually, the complexity of a tokenized asset comes from its legal status and existing regulations since there is a lack of clarity when it comes to asset tokenization in many jurisdictions.
NMKR’s new platform finest is proposing writing an open-source smart contract to tokenize real-world assets and have it be compatible with the regulations of the Federal Financial Supervisory Authority (BaFin), Germany’s integrated financial regulatory authority.
It would allow any business the ability to mint tokenized assets, and these tokens would be compatible with the BaFin legal framework.
If completed, anyone purchasing these assets would have the assurance that they are backed by BaFin.
Once the smart contract is created, NMKR’s platform finest will approach BaFin to audit the code and the business logic.
The aim is to make it compatible with the German Electronic Securities Act (eWpG) and broader EU regulations to pave the way for tokenized assets.
If approved, this could provide a major stepping stone for more tokenized assets using NMKR’s platform finest and other blockchain industry participants.
EMURGO is a global blockchain technology company that provides a variety of Web3 products & services including technical infrastructure development, blockchain education, investment, and media.
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You should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained herein shall constitute a solicitation, recommendation, endorsement, or offer by EMURGO to invest.
