Tokenization as an evolutionary step in the process of securitization

Abstract

Since the very beginning of financial markets, one of the key prerequisites for successful functioning is liquidity, which implies the ability of assets to be converted into money at fair market value. It is precisely for this reason that securitization was created as a concept of repackaging claims into financial instruments. With the advancement of technologies and the emergence of the blockchain as a distributed database, tokenization is also emerging enabling the possibility to incorporate any property right into a token which can be traded on the blockchain, ensuring the transparency of the process with an increase in efficiency reflected in faster execution of transactions and lower costs. Also, the token as a multi-functional instrument enables the creation of new business models and additional value compared to securitization. Additional advantages of tokenization in relation to securitization are reflected in the programmability that thanks to the use of smart contracts, allows the terms of the contract to be modified according to the change of the key provisions of the contract with automatic execution. Tokenization is currently most used in the finance and real estate industries.