The world is on the brink of welcoming the next generation of the internet with promising developments in the domain of web3. One of the notable aspects that have been promoting the growth of web3 applications is tokenization. The curiosity to learn about important tokenization terms will lead you to find different ways in which tokenization is essential for the future of web3.
Tokenization is a critical requirement for web3 applications to ensure better accessibility of assets. According to a report by McKinsey, the tokenized asset market capitalization could turn into almost $2 trillion by 2030 (Source). The use of tokenization started with cryptocurrencies, followed by utility tokens, stablecoins, NFTs and most recently, real-world asset tokenization. An overview of important terms in tokenization can help you understand its significance.
What is Tokenization in Terms of Web3?
Many people are likely to end up with confusion when trying to search for definitions of tokenization. You can find tokenization in the domain of payments, used primarily for cybersecurity purposes. Tokenization in cybersecurity involves hiding the identity of a payment to prevent fraud. In the case of AI, tokenization represents the process of breaking down data to facilitate easier pattern detection.
The meaning of tokenization terms in crypto deals with a completely different definition. Tokenization in crypto and web3 is about the digitization process that transforms the rights to an asset into digital tokens. Users can hold the tokens and trade them digitally on a blockchain. The tokens can represent digital assets or physical assets, as evident in examples of real-world asset tokenization.
Want to learn the fundamentals of tokenization? Enroll now in the Tokenization Fundamentals Course
What Are the Primary Reasons Supporting Tokenization?
One of the most important things that come to mind when searching for insights on tokenization is its purpose. Tokenization builds on the concept of securities and leverages blockchain technology to reduce the barriers to access a broader range of assets. Any tokenization example in the web3 space will help you discover the different advantages of tokenization.
Tokenization opens the doors for fractional ownership of assets, thereby reducing minimum investment amounts. It enables people to invest in assets that were previously inaccessible, with smaller investments.
-
Programmability in Tokenization Terms
The transformation of assets into digital tokens also establishes the foundation for their easier governance with smart contract code. The benefits of programmability are visible in flexibility for automatic execution of payments, contractual agreements, and compliance audits.
-
More Efficient Transactions
The different tokenization types in web3 and crypto space provide the ideal ground to maximize the efficiency of transactions. Tokenization helps in bypassing traditional market structures and intermediaries, thereby reducing the time required for trade settlement.
-
Expanding Liquidity of Conventional Assets
Fractional ownership with tokenization creates new possibilities for trading conventional assets, such as private funds and real estate. You can now own a part of a luxurious property as a digital token and use it for trading in secondary marketplaces.
-
Better Security and Transparency
Tokenization introduces blockchain technology into every asset class, which provides the assurance of enhanced security and transparency. Blockchain offers an immutable record of transactions that anyone can audit, thereby making your assets more secure and transactions become more transparent.
Accelerate your crypto career with the world’s only accredited Cryptocurrency Certification, and master the skills that set you apart in the fast-evolving digital asset landscape.
Unraveling the Different Tokenization Types in the Web3 Space
Tokenization in web3 has built the perfect stage for creating different types of tokens. The search for answers to “How many types of tokenization are there?” will help you uncover multiple options for asset tokenization. Learning about the different variants of tokenization can help you understand how it has the potential to make web3 better.
Among the many types of tokenization, the implications of utility tokens take away most of the attention. You can find utility tokens in almost every web3 protocol or decentralized network. The term ‘utility token’ explains its purpose as a native token used for different purposes in the web3 protocols. Utility tokens can be used as,
- Gas fees for transactions on the protocol.
- In-app credits for different activities in the protocol.
- Licenses for access to various functionalities in the protocol.
The description of utility tokens in tokenization terms also paints a clear impression of many other applications of utility tokens. You can use them to build communities in web3 protocols or participate in decentralized governance of the protocol through DAOs. Utility tokens can also be offered as incentives to project contributors and supporters of the protocol infrastructure.
The next prominent addition in the list of types of tokenization, security tokens, also showcases how tokenization will shape web3. Security tokens are generally associated with a centralized institution or a group of people. A security token can be a representation of equity of a business project or the value of assets associated with it.
Business projects leverage equity tokens to provide dividends on the stake of a token holder in the project. On the other hand, security tokens that represent assets derive their value from the underlying asset. The underlying asset in a security token can be real estate, bonds, and shares of public companies or commodities.
-
Real-World Asset (RWA) Tokenization
You cannot make a list about tokenization terms in crypto and web3 space without RWA or real-world asset tokenization. As the name implies, RWA tokenization focuses on tokenizing real-world assets and representing them on a blockchain. The digital RWA token will represent the legal rights associated with the underlying asset. Blockchain Capital launched one of the first RWA tokens as a Security Token Offering in 2017 and raised $10 million in one day.
The scope of real-world asset tokenization encompasses physical assets, digital securities, intangible assets such as IP rights and private credit or debt. As of the time of writing this, RWA tokens represent assets worth more than $390 billion (Source). It clearly showcases how real-world asset tokenization has gained huge momentum within a small span of time.
Embrace the technological leap and global adoption that awaits in the upcoming bull run with Crypto Bull Run Ready Career Path.
Final Thoughts
The impact of tokenization has not only strengthened the foundations of web3 but also created new options for welcoming more users. You can only imagine how different tokenization types, especially RWAs can make more assets accessible to users. Apart from accessibility, tokenization brings many other advantages to the web3 and crypto space. Awareness of important terms related to tokenization will offer the ideal ground to anyone interested in exploring the web3 landscape.
You can learn more about tokenization with the “Tokenization Fundamentals” course by 101 Blockchains. The comprehensive entry-level course offers detailed insights on fundamental concepts of tokenization and different models of tokenization. Learners can discover valuable information about the usability of different types of tokens and the regulatory concerns associated with tokenization.
*Disclaimer: The article should not be taken as, and is not intended to provide any investment advice. Claims made in this article do not constitute investment advice and should not be taken as such. 101 Blockchains shall not be responsible for any loss sustained by any person who relies on this article. Do your own research!
