How the use of “token” has changed the financial sector
The digital market has offered solutions that aim to democratize the economy, with creative options that stimulate the diversification of business opportunities in the virtual environment. A great example of this is the increase in interest and use of the token.
Financial technology is not new, but its growth through fintechs and the use of cryptocurrencies has been felt in recent years. And it doesn't stop there, this growth has become a trend in the financial sector.
According to a study carried out by Grand View Research, the getway-based technology segment will expand by 25.26% and tokenization is expected to help generate around US$ 13.5 billion (R$ 70 billion, at the current price) by 2030.
It is well known that the innovations brought about by digitalization are on the rise, and understanding their size can be a great market differential.
In this article you will understand what “Tokenization” is, what is the difference between this model and other crypto assets and its impact on the financial sector.
What is tokenization?
With all technological ease, many of the inventions we see today were just ideas projected into the social imaginary through movies, cartoons, and series. However, today they have become real. Can you imagine a world where it is possible to transform any real asset into a digital one?
With the “token” and the tokenization movement, this has become real and revolutionizing the financial market. This trend brought the possibility of turning physical goods, intellectual and artistic production, and a multitude of products and services transformed into tokens by inserting them into blockchain technology.
The term “token” can be defined as a record of value or digital contract law of a particular asset, which is protected through blockchain cryptography. Tokenization, on the other hand, corresponds to the process of digitizing assets.
”Tokenization it is nothing more than the transfer of values, properties, records, via the internet, from one place to another. O Token digitally represents a physical asset, a real asset. The potential of this is that any product that is both physical and digital can be represented by a token.” - André Portilho, partner at BTG Pactual
This mechanism began to be popularized after the digital opening made by The fintech revolution, but it was in 2018 the beginning of Tokenization of financial assets and the launch of some platforms of Security Tokens, in the USA and Europe, that this innovation has established itself as a trend.
Practically speaking, when we talk about tokenization we are talking about a “digital reflection” of physical assets, but which continue to exist in the real world, or that are created directly on the blockchain. Examples of this are securities (stocks, fixed income securities, investment fund shares, fiat currencies) and non-financial assets (real estate, patents, works of art, music).
Tokenization allows the division of assets into smaller parts, which makes large investments (previously restricted to high-income investors) more democratic, as they are more accessible, and more accessible by expanding the range of investors.
With all this repercussion in the sector, the market is creating more and more types of tokens to serve the public, such as: Payment tokens, Utility tokens, Non-fungible tokens (NFT) and Security tokens.
Therefore, talking about a token is not limited to talking about blockchain. Like any innovation, the use of blockchain has been important both for building new ideas and for new aspects. As well as understanding the relationship between digital signature and blockchain It was important, understanding the relationship between tokens is essential for the current market.
Understand the benefits of the Token:
Digitalization in the financial sector provided the structuring of new business models, based on their advantages and disadvantages.
For most startups, investing in new technologies is essential to enter the segment. Like the boom of Metaverse, it is necessary to know the right time and be aware to be clear about what to implement and invest.
The great interest in Tokens lies in their advantages, since in a strategic way they can be an excellent way to create loyalty for customers and even a central part of planning aimed at business culture. Additionally, here are some advantages of tokenization:
- Access:
With tokenization, there is no need to use the traditional industry model, as there is no need for an institution to broker transactions. In this way, making it easier for anyone to invest in high-performance assets and for the owners of these assets to be much greater.
- Protection:
The use of blockchain technology allows the token to have a high level of reliability and security, since this technology and smart contracts serve as a security barrier that is extremely difficult to circumvent or change.
- Transparency:
All token trading records are saved on the blockchain and can be viewed by participants anytime and anywhere.
- Efficiency:
As there is a decrease in the number of intermediaries in the process, tokenization reduces the costs of operations and makes them more agile and less bureaucratic.
- Divisibility:
Tokens are always small fractions of assets, and so there is a wider range of digital assets traded through the division of large assets into better parts. In this way, generating greater democratization, allowing you to invest in assets that were unusual until then and for low amounts.
With all these advantages, Tokenization goes beyond transforming a real asset into digital parts so that they can be traded more easily. It allows you to generate returns from assets that you would never have access to through the stock exchange.
Impacts of the Token on the financial sector:
The financial market deals with trillions of dollars every day, but currently the digitization of the sector has dealt with an even larger number. As much as the sector is still at the forefront when it comes to technology, fintechs, such as for 2 peers, and blockchain became a milestone.
There are more than 34 million Brazilians who do not have a bank account, according to a study published by Valor Investe, in other words, people with a low income still have difficulty opening an account and do not have access to other credit services due to red tape.
To give you an idea of how tokenization promotes the democratization of investments, when we talk about small credit rights, below R$ 10 million, we have a small volume to carry out a transaction in the capital market. However, when dealing with the token segment, R$ 1 million or R$ 500 thousand is already an extremely interesting credit right in terms of business.
With token technology, these bureaucratic processes lose emphasis and it is possible to reach these people and make them own market-moving assets. All this done without them paying exorbitant fees to the traditional financial system.
Commercial exchanges made using blockchain and the token are faster, more efficient, and more accessible to everyone. These innovations are also being important for companies, as they allow for a more transparent process in corporate social responsibility initiatives.
In the business environment, the main difference is that with the use of the token it is possible to track the amounts collected and transacted until it reaches the beneficiary and accounts for the impact generated by the actions. In this way, generating more marketing reliability for your company and more transparency for your employees.
Looking back at recent years, it is evident how the financial sector has changed and encompassed new digital technologies such as the token.
The need for digitalization in the sector was sharpened by the restrictions of the pandemic, where they needed to avoid crowds and at the same time devise strategies so that the impacts would not be disastrous for the financial market.
Among these numerous solutions, came the token, but it was only able to be consolidated in 2021. Today it is practically unfeasible to think of a world without the facilities of these innovations and without the use of tokenization. The ease and advantages that this model brings are essential for democratization, for companies and for individuals.
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