How Decentralized Systems Are Reshaping the Financial Market

Financial assets include the companies' shares, both private and public, bonds, units of funds, and other financial instruments. It should be understood that in addition to the fact that each country has not only a number of its own regulatory features but all technical infrastructure systems are also built on the principles of centralized management.

That is, users trust professional market participants to handle their assets. For example, an investor buys or sells shares through a broker, traders keep their balances in exchange accounts for trading, or a bank client trusts them to keep money in their accounts. In all cases, the asset owners trust the third organization.

This is where the problems begin...

There are thousands of examples when even regulated financial institutions deceived their clients, went bankrupt, blocked, or completely lost all the assets they kept on their balance sheets.

Many companies surreptitiously enrich themselves by owning assets other than their own, floundering on their balance sheets, and playing complex financial games that, in most cases, are not directly understood by the asset owners. Problems also arise in the most stable companies, Lehman Brothers, to say nothing of small companies in financially underdeveloped regions.

The problem is apparent — people cannot freely dispose of their assets and depend on a number of often non-transparent organizations. Many centralized organizations operate in an old-fashioned way, although they have long lost their credibility. But is there a solution?

There is a solution!

The development and implementation of decentralized systems allow users to independently own their assets without resorting to custodians or other centralized institutions.

First, let's understand that decentralized networks are various blockchains that store data in distributed ledgers and do not need a central operator. Take the Bitcoin blockchain as an example. No authority could stop the system or hack the data stored in it.

To date, not a single hacker has been able to break into this network by appropriating other people's assets. Blockchain is a database with utmost trust in the absence of even one system administrator.

The rapid development of the crypto industry over the past ten years has demonstrated a clear interest in decentralized technologies, and today cryptocurrencies are in circulation by 300 million users. Still, they are also regulated in most countries along with financial assets.

Only in the United States over the past three years, 21 legal acts have been adopted that regulate operations with crypto assets and their derivatives. Over the past three years, the concept of Decentralized Finance has come into everyday use, including all financial transactions with crypto assets.

Based on new technologies, decentralized exchanges, deposit and lending systems, complex programs of composite income by providing liquidity to other protocols, and much more have been created. Today, the DeFi market is estimated at $239 billion (defining market size as TVL in DeFi protocols) and is only gaining momentum.

But let us remind you that most transactions in DeFi occur with classic crypto assets that have no real value in the offline economy. The fundamental technological adoption will happen when tangible assets, such as real estate or corporate securities denominated in security tokens are freely stored and exchanged on blockchains. This can happen thanks to changing the notorious outdated systems, centralized depositories, and trading platforms.

We are talking about the liberalization of capital and providing an opportunity for all people with a blockchain wallet to participate in the global capital market, remaining directly the holders of their assets and not transferring their ownership to third parties.

An overwhelming majority of the companies worldwide are not public and therefore aren't traded on the security exchanges. Instead, they remain private and are seldom traded anywhere, making them a lot less liquid than public companies’ shares or cash.

If you have a stake in such a business that you wish to sell as soon as possible, you won't accomplish this goal very quickly: even after an investor is found, it takes a couple of months to draft paperwork. Thankfully, such a status quo is finally changing thanks to tokenization technology and decentralized solutions.

Any business can be tokenized and represented in the form of liquid tokens, which opens a brave new world of opportunities for traditional private companies.

Firstly, liquid businesses attract more investors' attention. The possibility of selling the security tokens anytime on a decentralized platform that doesn't depend on brokers and intermediaries is a considerable advantage. Stobox DS Swap is one such platform.

Secondly, attracting money to such a business is much simpler as the investor's geography is global and not limited to the owner's or local broker's inner circle. Fully-compliant online fundraising is an absolute advantage of tokenization.

Thirdly, the DeFi mechanics open up possibilities for creating new business models that would feature utility tokens or NFT. For instance, a real estate project in Tulum, Mexico, uses NFT and its own cryptocurrency to work with its community of investors and clients.

"In practice, we are witnessing the successful application of tokenization in a number of industries every day, primarily real estate, which is the most voluminous asset class with very low liquidity. The first security token to be traded on the decentralized platform DS Swap will be our client's Landshare real estate token. We are negotiating with several major real estate companies and will soon bring many more security tokens to the market."

- CEO and Сo-founder of Stobox, Gene Deyev.

The last thing worth mentioning is that the entry threshold in tokenized assets for investors is as low as $100 or even less. Provided that 2 billion people worldwide are unbanked and the inflation rates are getting higher and higher, preserving personal funds in a real-estate-backed security token will be a reliable means of saving for millions of people worldwide.

Let's imagine a world where multimillion commercial buildings belong not to financial groups but are represented as millions of security tokens and are preserved on Androids or the Indian fishers' wallets, bringing a stable 10%-12% annual income, as well as the possibility to sell an asset anytime.

Summary

Tokenization has gone far from a theoretical concept. Today it is an actively developing technology at the intersection of traditional finance and blockchain. Many companies and government bodies are exploring the possibilities of tokenization.

For example, a group of Stobox experts participated in developing laws related to tokenization, together with the Ministry of Digital Transformation of Ukraine. We have spent over 50,000 hours researching and consulting for our clients.

If you would like to learn more about tokenization for your company, we would be happy to advise you.