Asset Tokenization is Facing Multiple Obstacles on the Way to Mass Adoption

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In Brief
  • For many years, tokenization has been considered one of the most promising options of using the blockchain.

  • However, there are multiple factors hindering this vision.

  • These include lack of access, the digital divide and regulatory concerns.

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For many years, tokenization has been considered one of the most promising options for the blockchain, as it can unlock tens of trillions of illiquid dollars. Thus, providing businesses and retail investors with never-before-seen opportunities.

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However, a look at the current situation reveals neither rapid growth nor enthusiastic investors or even a single successful project. Let’s review the issues preventing the widespread adoption of tokenization and how this can be addressed.

Lack of awareness 

Despite all the hype around bitcoin and blockchain, only 0.71% of the world’s population (65 million people) are involved in blockchain technology.

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According to data from Google Trends, even fewer people know about tokenization and its benefits for businesses and investors.

No common standards and rules

The next problem lies with the fact that, so far, not one country has implemented a clear regulation of tokenized assets on the blockchain.

For example, what happens if an Indian farmer tokenizes his future crop and sells those tokens on a UK platform to a U.S. resident? From a legal point of view, that transaction is currently risky and hardly possible. Especially since no one knows whether it is legal, how to record it, and what taxes to pay. 

Another difficulty associated with regulation is the lack of professional legal expertise. Few lawyers have experience in successful legal support of blockchain-based asset tokenization.

However, even they can’t fully guarantee that their next tokenization project goes smoothly and within the specified time limits. The market is fraught with pitfalls.

Digital divide problem

As a digital technology, tokenization faces constraints with regard to widespread deployment due to the digital divide.

The term refers to the gap between those who have access to internet technologies and those who do not. Moreover, the largest digital divide is within regions whose businesses can benefit most from the tokenization of their assets. 

These are primarily the countries of Africa, Central America, and the Indian Ocean basin (except Australia and Malaysia). These countries’ small and medium-sized businesses are often in dire need of an inflow of investment. This is because they lack access to cheap loans or nearby banks.

However, unfortunately, in these countries, a majority of the population still doesn’t have adequate access to the internet. This makes accessing tokenized loan solutions an issue.

No “all-inclusive” solution

By looking at the market, we won’t find a single provider that offers a full range of tokenization services in a one-stop shop.

Businesses and investors have to deal with multiple service providers. Moreover, they are likely based in various jurisdictions. This is a further complication since tokens should ideally trade internationally. Today it’s downright impossible, as different countries have different rules.

Lack of liquidity

Tokenized markets currently have very low liquidity, as a limited number of exchanges cannot attract enough investors.

The only exception is NFT marketplaces, which benefit from the initially greater media exposure of the assets they tokenize. 

Furthermore, the industry has problems with anonymity and pseudo-anonymity when it comes to anti-money laundering, counter-terrorism financing, tax evasion, fraud, hacking, DoS attacks, and other digital crimes. 

Resoltuions on the horizon

Don’t worry, it’s not all doom and gloom. We have identified quite a few difficulties that stand in the way of the widespread adoption of tokenization. However, we will likely see a resolution to these in the next few years.

These resolutions will come with the passing of the MiCA initiative in the EU and similar laws in the U.S. and China. Once a leader comes up with the necessary smart contracts or dApps market, these difficulties with standardization will be resolved.

Provided that these two problems are addressed, investors could buy and sell tokenized assets without fear of consequences from regulators and tax authorities. Consequently resolving liquidity issues. 

There is an increasing number of tokenization services. Particular attention should be paid to the integration of the tokenization platform with exchange functionality. This solution will allow investors to freely and, most importantly, easily interact with tokenized assets.

Other complications related to the mass adoption of tokenization will be tackled in time, with the market growth and the rapid diffusion of the internet.

Disclaimer

All the information contained on our website is published in good faith and for general information purposes only. Any action the reader takes upon the information found on our website is strictly at their own risk.
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Oleg Kurchenko is a serial tech entrepreneur, investor and business executive with over 10-years of experience in the fintech industry. Currently, he is serving as Founder and CEO of Binaryx, digital asset exchange. In 2012 he founded his first software development company. He got acquainted with cryptocurrencies in 2014, and in 2016 assembled a mining farm. Oleg started developing FinTech projects in 2017. Binaryx is his second FinTech company. Prior to launching Binaryx, he created a financial services company called Paytion in 2016.

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