Daniel Valero, founder and chairman of the Caracas Commodity Exchange (CcsCEX), shared an article with Cointelegraph en Español speaking about what tokenization consists of and its benefits in general and for Venezuela, a country about which he likes to say with his organization, that it can be completely tokenized, since it can be digitized and divided into smaller parts.
“Tokenization is the way that any real-world asset, tangible or intangible, is digitized and then broken down into smaller parts that take the form of tokens. In a broad sense, a token is basically a representation of something else, and in this case, each token represents a proportional part of the digitized asset. This also means that the owner of the token owns the property rights or other rights”Valero explained.
“It can be literally anything physical assets such as inputs, crops, plants, the production of mines of any mineral, hydrocarbons, wood, real estate or art, even water that is a commodity and take it to a global market”he added.
Benefits of tokenization
Knowing that tokenization is a mechanism through which it is possible to provide access to any person, to markets that seem unattainable, it should be clarified that this is not the only benefit that exists when using tokenization, that is why Valero has listed others five benefits in which he explains in more detail how this, “change the rules of the game”:
Tokenization allows for greater liquidity by allowing assets to be split up and owning only part of them, which also means being able to carry out actions on said parts.
Tokenization can create new business and social models, such as sharing ownership of the property itself or the rights that belong to it.
Tokenization can only exist using blockchain technology and thus this means that a shared infrastructure is used between all participants.
Another well-known benefit of using blockchain as the underlying technology is its transparency by default, as transactions made on the blockchain can be seen by anyone at any time.
The ability to make easily identifiable transactions adds the advantage of having a single point of entry for information. It’s more feasible to get all the information in a single call, rather than having to rely on different data points to verify transactions and ownership. The use of a single layer where all transactions and information are stored allows multiple parties to obtain the complete information from a single source. Also, since the data stored on the blockchain is immutable, the same information is always available to everyone and the same information will be available at any time.
tokenization example
In this sense, Valero has also shared an example of what a tokenization process would be like in order to understand what it consists of and its benefits. To do this, he has taken the case of an investor who might be thinking of entering the corn planting market and is studying a thousand-hectare plot of land that costs a million dollars.
The investor knows that the thousand-hectare plot of land is in a privileged location whose value can only increase in the coming years. The entry ticket is high, so you do not have a lot of liquidity to invest, or a guarantee to obtain a loan from a bank to be able to invest in the property.
“These two factors, in addition to being a barrier, can become problems for said investor. On the one hand, deploying large amounts of capital can lead to problems in the future should you need liquidity, and on the other hand, entering debt instruments means entering a debt position, which adds the additional issue of having to pay interest on the money requested, and having to return everything within the established periodValero explained.
“With tokenization, the thousand-hectare land can be divided into as many parts as needed, so the thousand-hectare land that costs one million dollars is now represented in 10,000 EXCHANGE Token (to take an example, it is the token of the CcsCEx) with a value of USD 100 each. This entry ticket is more suitable for the investor, since he does not have to go into debt or perform magic tricks to obtain the capital to invest in what he considers a profitable investment. With this small ticket of entry, he now has access to invest and decides to buy 100 EXCHANGE Token to obtain a return proportional to the performance of the land of 1 million dollars”plot.
Having said this, Valero pointed out that the performance of the thousand-hectare plot of land that costs one million dollars may be linked to the fact that it is rented, sold or exploited for planting corn, thus obtaining profits on a recurring basis, which are distributed among all the holders of tokens, or because the land flips, for which remodeling works are carried out on the land to increase its value and sell at a higher price than it was purchased; again the profits are distributed among the token holders.
“These are just examples of how land can be developed, but there are many other ways land can be profitable for investors. The only important thing to keep in mind is that it does not matter what model is used to obtain benefits, the important thing is that these are distributed proportionally among the owners of the tokens”commented.
“For the purpose of showing an example, we divided the land of one thousand hectares of 1 million dollars into 1,000,000 square meters, but in reality you can divide the land into 1 million tokens worth 1 USD each to reduce even more the entrance ticket. In this case, people will have to assess whether they prefer to drink a bottle of water or buy a token to earn profits based on the performance of the digitized and tokenized real-world asset.”he added.
Disclaimer: The information and/or opinions expressed in this article do not necessarily represent the views or editorial line of Cointelegraph. The information set forth herein should not be taken as financial advice or investment recommendation. All investment and commercial movement involve risks and it is the responsibility of each person to do their due research before making an investment decision.
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