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June 28, 2023

3 industries primed for tokenization with Polymesh

Explore 3 industries that are prime for asset tokenization with Polymesh – real estate, private equity, and carbon credits – and how they can benefit from integrating blockchain technology.

Asset tokenization is the process of converting real-world assets (RWAs) and other assets into digital tokens that can be easily traded and managed on the blockchain. Asset tokenization has the potential to unlock many new opportunities for investors, issuers, and regulators alike by creating more efficient, transparent, and secure markets. However, not all blockchains are suitable for tokenization– many public blockchains face significant issues around scalability, compliance, governance, and interoperability. 

Enter Polymesh: an institutional-grade blockchain built specifically for regulated asset tokenization. Polymesh offers a number of features that make it the ideal choice for tokenizing assets across various industries. Examples include protocol-level token creation, modular and customizable token configuration, industry-led governance, identity verification, transaction finality, a sophisticated compliance engine, and asset lifecycle management.

In this blog post, we’ll explore 3 industries that are prime for asset tokenization with Polymesh and how they can benefit from integrating blockchain technology: real estate, private equity, and carbon credits. 

1. Real estate

Globally estimated to be worth more than $3.7 trillion, real estate is one of the largest and most lucrative asset classes in the world. It’s also one of the most illiquid and faces a number of challenges limiting its potential such as high barriers to entry, high transaction costs, and inefficiencies. 

Asset tokenization can address these challenges by enabling fractional ownership, faster and cheaper transactions, and global access. Tokenizing real estate can create new investment opportunities, lower the barrier to entry for investors, increase transparency and liquidity, and reduce cost and reliance on intermediaries or manual processes. 

Polymesh is an ideal platform for tokenized real estate assets because it offers a robust and compliance-capable framework for issuing and managing security tokens

A few of the benefits that Polymesh offers for real estate tokenization include:

  • Protocol-layer issuance inspired by the ERC-1400 standard and building in additional capabilities to be compatible with capital markets needs and other platforms
  • A modular compliance framework that allows issuers to set rules around who can hold and trade their tokens based on factors such as jurisdiction, accreditation status, KYC/AML checks, and more
  • Modules for corporate actions such as a dividend module that enables issuers to distribute capital to their token holders in a simple and automated way

Polymesh is already powering some of the most exciting real estate tokenization projects in the industry. For example, Polymath’s Capital Platform is built on Polymesh and provides an end-to-end platform from fundraising through to investor management for various assets, including real estate. 

Another company using Polymesh for tokenized real estate is ABC Tokens, which aims to democratize commercial real estate investing by offering fractional ownership through tokenization.

To learn more about tokenization’s potential to transform the real estate industry, take a look at these blogs: 

2.  Private equity 

Private equity is another asset class that stands to benefit from the improved liquidity, efficiency, and transparency tokenization brings.

Like real estate, private equity is one of the most lucrative and exclusive asset classes in the world, but also one of the most illiquid and inaccessible. The process of raising, investing, and exiting private equity investments is complex, costly, and time-consuming, involving multiple intermediaries and regulatory hurdles. 

However, asset tokenization could resolve these problems and lift the limits preventing private equity from reaching a wider pool of investors and entrepreneurs. By tokenizing private equity investments, issuers and investors alike can benefit from increased liquidity, transparency, efficiency, and security with reduced friction, reliance on intermediaries, and costs. 

For issuers, asset tokenization can help to raise capital more efficiently and effectively by reaching a broader and more diverse investor base including both retail investors and institutional investors. Tokenization can also help optimize fund operations and performance by streamlining administrative, reporting, and auditing processes and by leveraging data analytics. 

For investors, asset tokenization can help increase portfolio diversification and enhance returns by increasing access to high-quality private equity investments with lower minimum investment thresholds, higher liquidity, and lower risk.

Purpose-built for regulated assets, Polymesh is the best-fit platform for any tokenized private equity assets. Polymesh enables private equity issuers to create and manage tokenized funds with ease and flexibility while ensuring compliance with relevant regulations. Meanwhile, investors benefit from access and trade of tokenized funds with lower costs and faster settlement. 

A few benefits that asset tokenization on Polymesh brings for private equity include:

  • Protocol-level token creation that bypasses the need to add a smart contract for each security token simplifies the token issuance process, reducing fees and the risk of vulnerabilities
  • Verified identity, as Polymesh requires all actors on the chain to pass a minimal identity verification check with a customer due diligence (CDD) provider when onboarding 
  • Permissioned node operators who must be licensed financial entities ensure that all transactions are authorized by known, trusted entities 
  • Confidential asset management through a secure asset management protocol (MERCAT) that keeps trade and position confidentiality without compromising on compliance 

Overall, tokenizing private equity on Polymesh can unlock new opportunities and value for both issuers and investors. To learn more about tokenization’s potential to transform private equity markets and other private investment markets, take a look at these blogs: 

3.  Carbon credits 

Carbon credits are certificates representing quantities of greenhouse gas emissions that have been reduced, avoided, destroyed, or captured. Carbon credits are issued by governments or organizations that regulate carbon markets, such as the United Nations or European Union. 

Carbon credits function as a kind of permit. Carbon credits can be traded or sold to entities that wish to offset their own emissions, including individuals but most commonly corporations. 

For regulated sectors with a set cap on how many tons of emissions can be released – such as oil, transportation, energy, or waste management – carbon credits can be used to enforce compliance. Companies that exceed the prescribed emissions limit must buy or use their existing carbon credits to remain under the emissions cap. If the company is under the limit, it can save or sell its carbon credits. This is what’s known as the “carbon compliance market” or involuntary market. 

In the “voluntary carbon market” (VCM), companies buy carbon offsets horizontally from businesses with lower carbon emissions in their normal business operations. It’s important to note this doesn’t actually mean a reduction in greenhouse gasses released by that company– the company is instead offsetting them. 

Both the involuntary market and voluntary carbon markets are plagued with problems, notably: high inefficiencies, fraud, fragmentation, and lack of transparency. Further, there’s no global standard for verifying and measuring the impact of carbon reduction projects, which can lead to double counting and overestimation of credits. Moreover, the intermediaries involved often charge high fees and commissions that reduce incentives for companies to participate. 

This is where asset tokenization on Polymesh comes in. By tokenizing carbon credits on Polymesh, issuers can leverage the benefits of blockchain technology to create more efficient, transparent, and secure carbon markets.

A few benefits that asset tokenization on Polymesh brings for carbon credits include:

  • Transparency through real-time tracking of carbon credits from issuance to transfer and redemption, available on a public ledger for buyers, sellers, regulators, and auditors to use as the source of truth
  • Liquidity and a globally accessible marketplace, as Polymesh can facilitate the exchange and trading of carbon credits across borders and jurisdictions
  • Security of assets as cryptography and a secure consensus mechanism with proof-of-stake protects the ownership and integrity of carbon credits
  • Compliance enforcement via a sophisticated compliance engine that ensures only authorized parties can issue, transfer, or redeem tokens

Ultimately, the tokenization of carbon credits presents an exciting new possibility for carbon markets and for regenerative finance (ReFi), a growing Web3 trend that takes a holistic look at the financial ecosystem by considering its environmental, social, and economic impact. Tokenizing carbon credits on Polymesh can increase the value of carbon credit markets by providing verifiable and liquid carbon credits with less intermediary involvement that can be independently verified and audited. 

Tokenization is the way forward

Asset tokenization isn’t a distant dream– it’s a present reality, and Polymesh is the platform that can make it happen as it integrates governance, identity, compliance, confidentiality, and settlement into its core.

What’s more, Polymesh eliminates the need for smart contracts or multiple environments by providing native functionality for both fungible and non-fungible tokens (NFTs) at the protocol layer. 

Built with the Substrate framework, Polymesh also enables easy interoperability with other Substrate-based blockchains and platforms that can provide additional services and functionalities for tokenized assets.

To learn more about the benefits of tokenization on Polymesh for real estate assets, private equity, and other real-world assets, visit polymesh.network/real-world-assets.

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