- Date : 15/11/2022
- Read: 7 mins
Would you like to invest in real estate at a fraction of the cost? Or maybe fund an artist to create music and earn a share of the royalties? Blockchain and NFT applications make such things a possibility.
Many of us have either experienced or heard of fractional ownership of mutual fund units. Some of you must have heard of fractional real estate ownership or US shares. And with the advent of blockchain use cases, fractionalisation is now a reality for many tangible and intangible assets. In this article, we will understand how fractional ownership of various assets is made possible through tokenisation and how this has resulted in the democratisation of assets to retail investors.
What is the tokenisation of an asset?
Tokenisation of an asset means creating its unique digital representation. When a tangible or intangible asset is tokenised into a digital token, its ownership can be transferred using that token. For example, if you own a physical painting or an intangible patent, you can tokenise it using blockchain applications and sell it through the token. You can either generate a single token or fractional tokens on the particular asset.
Some of the tangible/financial assets that you can tokenise include:
a) Real estate
b) Company shares
c) Art and other collectables
d) Precious metals such as gold/silver
e) Digital currency
f) Electronics and other devices, etc.
Some of the intangible assets that you can tokenise include:
a) Patents
b) Copyrights over music or other services
c) Royalty
d) Licence over something
e) Intellectual property rights, etc.
One of the major innovations with tokenisation is fractionalisation. Fractionalisation allows an asset owner to generate smaller tokens for an asset and sell it to multiple people.
Image: Tokenisation and fractionalisation
(Source: https://appinventiv.com/blog/blockchain-assets-tokenization/)
The above image shows how tokenisation and fractionalisation help an asset owner solve the liquidity challenge and remove the high-cost entry barrier for a retail investor.
Also Read: 5 Assets That You Can Liquidate Quickly In Case Of An Emergency
Benefits of fractionalisation
The fractionalisation of asset classes has various benefits. Some of these include:
- Bringing down the minimum investment threshold - Some tangible assets, such as real estate, art, etc., require huge amounts to be invested for ownership. However, this cost can be broken down into tokens using blockchain technology, and small fractions can be sold at a much lower price. For example, if a real estate asset costs Rs 1 crore, it can be tokenised into 100 tokens of Rs 1 lakh each. This way, one can reduce the minimum investment required to own a portion of the asset to Rs 1 lakh.
- Making the investment product accessible to a wider audience - Once the minimum investment amount is brought down for various assets using blockchain solutions, they will be accessible to a much larger clientele. So, certain physical and digital assets that were earlier accessible only to corporates, family offices, HNIs, etc., can be brought within reach of middle-class people.
- Liquidity - The higher the number of people that will be able to access the product, the more will be the liquidity. Higher liquidity helps owners sell the asset quickly without loss of value.
- No need for intermediaries - Blockchain-based tokens eliminate the need for intermediaries. Blockchain ensures transparency as the transaction details are accessible to all participants. An individual can identify the asset’s current owner and also check the past transactions related to the asset.
Non-fungible tokens (NFTs)
With tokenisation, an asset owner can generate fungible and non-fungible tokens. Fungible tokens can be exchanged with each other. For example, cryptocurrencies such as Bitcoin are fungible. If A and B each have 1 Bitcoin, they can exchange it as both are interchangeable and have the same value.
However, this is not the case with non-fungible tokens (NFTs), which are unique, irreplaceable, and non-interchangeable. NFTs can be generated on physical as well as digital assets/objects. They can be minted on drawings, paintings, posters, audio, videos, and even on social media posts like tweets. To cite an example, Twitter co-founder Jack Dorsey minted an NFT on his first tweet. In December 2020, the NFT market was so hot that Jack Dorsey sold the NFT on his first tweet for an eye-popping $2.9 million.
NFT market in India
An NFT gives you ownership of a unique digital asset with its data stored on a blockchain. While the NFT market has been growing rapidly across the globe, many NFT marketplaces have emerged in India and are doing well. Here are some of them:
- Rario
- Binance
- OpenSea
- BollyCoin
- Jupiter Meta
- BeyondLife.club
Many Indian sports and Bollywood personalities have joined hands with NFT marketplaces and released their NFT collection. For instance, Sachin Tendulkar has partnered with the NFT platform Rario. Rario also offers NFTs of other cricketers such as Virender Sehwag, Rishabh Pant, Zaheer Khan, etc.
Many movie stars, such as Amitabh Bachchan, Sunny Leone, Salman Khan, Rajinikanth, etc., have launched their NFT collections. Bachchan has tied up with BeyondLife.club to offer his NFT collection, which includes his film posters, his father's poem Madhushala, and other collectables.
Also Read: Have You Invested In Cryptos? You Need To Read This To Find Out The Most Crazy Crypto Predictions
Image: Amitabh Bachchan NFT on BeyondLife.club marketplace
Image source: BeyondLife.club
Rajnikanth has partnered with NFT marketplace Diginoor.io to offer his NFT collection from the movie Sivaji: The Boss.
Image: Rajnikanth (Sivaji: The Boss) NFT on Diginoor.io
(Source: https://diginoor.io/nftdetail/c0lhhIgYtkmzO0bkA0GW)
Manish Malhotra, one of India’s top fashion designers, is offering NFTs on digital sketches of some of his popular designs.
Image: Manish Malhotra NFT on WazirX
(Source: https://nft.wazirx.org/assets/0x23Cad0003e3A2b27b12359B25c25dD9a890AF8e1/6312)
How to buy NFTs?
You can buy NFTs in the following manner:
- Get a digital wallet where you will store your cryptocurrencies and NFTs.
- Purchase some cryptocurrency like Ether to pay for the NFT. You can buy cryptocurrency from crypto trading platforms like Wazirx.
- Once you have the digital wallet and cryptocurrency, head to an NFT marketplace like one of those mentioned above. Register on the NFT marketplace, browse through the NFT catalogue, select an NFT of your choice, and complete the transaction.
Democratisation of assets
Blockchain technology helps in the democratisation of assets among retail investors. It does this by bringing down the cost of ownership (fractionalisation), increasing liquidity, and bringing transparency. Some examples of these include:
- Estate Protocol (democratising real estate) - This start-up is working on the democratisation of real estate as an asset class. It does this by minting NFTs of smaller denominations on a real estate property. Retail investors can buy NFTs and get fractional property ownership at a low cost. They can further sell their NFTs on various marketplaces to get liquidity.
- FanTiger (democratising music) - FanTiger is a platform for music artists to drop music NFTs on song releases. Members (fans) can purchase (invest) these NFTs. The NFT makes the investor a fractional owner and gets a share of the royalty earned on the song from various platforms such as YouTube, Spotify, etc. The fans can also trade their NFTs on the FanTiger platform.
- Bru Finance (democratising lending) - This start-up helps farmers get loans through NFTs (backed by agricultural commodities). The farmer can approach a bank and get a loan against the NFT.
Also Read: 4 NFT Investment Strategies That Can Maximise Your Profits
Blockchain is the future
Blockchain technology has already started disrupting many sectors. It has brought down the cost of ownership of assets through fractionalisation, increased liquidity, and made transactions transparent. In the near future, we will see blockchain applications in many more industries, such as finance, healthcare, agriculture, transport, etc. It is only a matter of time before NFTs go mainstream and become a part of our daily lives.
