Understanding asset tokenization on Polymesh

For years, tokenization has been a buzzword in blockchain. Now, tokenization of assets is picking up steam beyond fintech as more companies recognize the benefits of asset tokenization for their business.

By converting the ownership and rights of various real world assets into digital tokens, asset tokenization unlocks new market value, streamlines asset management, and improves accessibility. Polymesh, a blockchain specifically for regulated assets, sets the standard by bringing simplified workflows, compliance-capable infrastructure, and robust security to the tokenization process. 

This blog post offers a brief overview of asset tokenization and its benefits such as liquidity, fractional ownership, and enhanced compliance. It also goes into unique features of Polymesh that make it suitable for tokenization of regulated assets, as well as the process behind tokenizing assets on Polymesh.

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What is asset tokenization? 

Asset tokenization is the process of representing traditional assets – including their ownership value and associated rights – with digital tokens. Tokens can be easily stored, managed, and traded on a blockchain such as Polymesh. 

A key benefit of tokenization is fractional ownership. Tokenization facilitates the division of large, valuable assets into smaller, easily tradable fractions that can be available to investors at a fraction of the cost compared to the whole. This democratizes investment opportunities and lowers barriers to entry for historically illiquid assets such as real estate, commodities, and collectibles. 

Asset tokenization makes it easier to tap into new markets. By widening investor pools and facilitating the creation of new asset classes through fractionalization, tokenization opens the floodgates to more liquidity, fairness, and cost-reducing efficiency in markets. 

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Benefits of tokenizing assets on Polymesh

Being purpose-built for regulated assets, Polymesh contains specific features that make it uniquely suited for asset tokenization compared to other blockchains. 

Efficiency and transparency

Clear proof of ownership, near-instant settlement, reduced counterparty risk, auditability, and improved operations simplify and streamline asset management. Reduced reliance on costly intermediaries and manual processes lead to fewer exploits and errors, freeing up funds for use elsewhere. 

Robust security

Polymesh has had 100% uptime with regular third-party audits and zero security exploits. Node operators must be licensed financial entities, ensuring only reputable entities with known identity can author and vote on new blocks. 

Identity

All participants pass a minimal identity verification process before using the blockchain, ensuring all participants onchain are verified and tying decentralized identifiers to a real-world identity. 

Compliance

Customizable compliance rules can be embedded into tokens for automatic enforcement, ensuring regulatory obligations can be met with minimal friction and efficiency.

Settlement 

Polymesh’s settlement engine requires all parties affirm settlement instructions, eliminating unwanted, unknown tax and regulatory liabilities. 

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Types of commonly tokenized assets

Polymesh supports the tokenization of a wide variety of real world assets through both fungible and non-fungible tokens, making it versatile infrastructure for different industries. Assets that can be tokenized on Polymesh include: 

• Equity: traditional public and private equity, such as company shares
• Debt: assets such as mortgages, government and green bonds, and treasury notes
• Other financial products: structured products, carbon credits, receivables, and more
• Commodities: energy products and natural resources
• Real estate: commercial and residential real estate
• Intellectual property: rights to ideas and inventions, from pharmaceuticals to music
• Art and collectibles: physical and digital art, antiques, exotic cars, and more

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Steps involved in tokenizing an asset on Polymesh

Tokenizing an asset on Polymesh involves several key steps that help simplify asset management across the entire asset lifecycle. 

As a prerequisite, it’s recommended to chat with an advisor or legal counsel, as tokenized securities will be subject to existing securities regulations. You’ll need to understand the compliance rules for your digital asset, so that you can input them later in the token issuance process. 

Issue your security token

The first step to tokenizing assets on Polymesh is to select your preferred issuance method. Will you integrate Polymesh directly in-house or with a white-label token manager? Or will you use an issuance platform for a completely no-code approach?

If you’re choosing to plug directly into Polymesh, you can use basic programming language and the Polymesh SDK. Using an issuance platform offers more convenience and assistance. 

Then decide when, where, and how to mint your token. Tokens on Polymesh are created at the protocol layer, passing the need for expensive, complex, third-party smart contracts. However, the blockchain supports smart contracts in the Ink! language should they be required. 

Set compliance rules

When you use Polymesh, you get access to the most sophisticated compliance engine on the market. Polymesh allows users to flexibly set rules around ownership and transfer. These customizable compliance rules are embedded into tokens natively for automatic enforcement in the execution of transactions, enabling you to meet regulatory obligations with less friction. 

Distribute your token 

Set the pricing for your token and, if desired, assign a qualified custodian to manage the process in a safe and secure way. When you’re ready, you can easily send it to existing shareholders, affiliates, or reserve accounts. 

You can improve liquidity for your asset and reach a broader pool of investors by offering your asset on secondary markets such as decentralized exchanges, where investors can exchange tokens directly with each other. 

Execute corporate actions and manage your asset lifecycle

Service your asset as per your business operations, client needs, and regulatory requirements. 

Corporate actions can be executed onchain to improve reorganization, capital distributions, and voting. Input a few details, and the engine can determine entitlements, schedule record dates, distribute capital if required, and update records. Polymesh offers flexible reporting that can be accomplished in a variety of ways to suit your needs, using your reporting tools or third-party solutions. 

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Conclusion

Asset tokenization is transforming the future of finance by unlocking new market value, streamlining asset management, and improving accessibility and liquidity of assets. Many financial institutions are already recognizing the immense potential of asset tokenization and developing tokenization offerings. 

Polymesh, with its compliance-capable, secure API-driven approach, offers simplified workflows and eliminates the need for complex, expensive, third-party smart contracts. By leveraging Polymesh, financial institutions can integrate tokenization quickly and stay ahead of the curve in the emerging global tokenization market, expected to reach USD $5T by 2025. 

Explore more benefits and processes involved in asset tokenization at polymesh.network/asset-tokenization.