Financial assets include public and private company shares, bonds, fund units, and other instruments. Each country has its own rules. All infrastructural systems are centralized. Decentralized systems started reshaping the traditional financial sector then.
Market professionals handle people’s assets. Let’s say an investor buys or sells shares through a broker, or a bank client trusts them with their money. Both cases involve third-party trust.
The beginning of the problems
Many licensed financial institutions have failed, deceived, blocked, or lost client assets. Many corporations create enormous revenues by using assets that don’t belong to them, manipulating their balance sheets, and playing complicated financial games.
People can’t dispose of their possessions freely and depend on entities that aren’t always transparent. Many centralized organizations lose trust this way.
There is a solution
Decentralized systems allow consumers to own their assets without third parties. Decentralized networks hold data in distributed ledgers without a central operator. Nobody can halt Bitcoin or take its data. No hacker has broken into this network to steal assets. Without a system administrator, the blockchain is a trusted database. The crypto industry’s growth in the recent decade shows the interest in decentralized technologies. 300 million people utilize cryptocurrencies today. Most jurisdictions regulate them alongside financial assets. In the US, 21 legislation acts regulating the business have been approved in the last 3 years.
This technology, decentralized exchanges, deposit and lending systems, made it feasible to establish intricate compound income programs by supplying liquidity to other protocols. The DeFi market is $239 million and growing.
Most DeFi transactions use classic crypto assets, which have no offline value. True adoption will occur when real estate or security tokens can be freely stored and exchanged on blockchains. Changes in outmoded systems, centralized systems, and trading platforms may cause this. Liberalizing capital lets everyone with a blockchain wallet to participate in the global capital market. Each would own their assets without third-party trust. Many enterprises around the world are not listed on stock markets. Private and infrequently traded, they’re less dependable than public company stocks or cash. We can’t sell rapidly if we’re involved in such a firm. Even with an investor, paperwork can take months. Tokenization and decentralized solutions are changing this.
Tokenization
Any company can be tokenized and represented as tokens, giving traditional private companies new potential. Investors prefer liquid firms. Consider selling security tokens on a decentralized platform without intermediaries.
This type of business also makes money easier. Because worldwide investors aren’t limited to the local owner or broker’s close group. Online fundraising is advantageous. We must also examine DeFi’s mechanisms, which allow us to design business models using utility tokens or non-fungible tokens (NFTs).
Investors can buy tokenized assets for less than $100. Inflation continues to climb as more than 2 billion people are not banked and fees rise. A security token backed by real estate would be a safe way to save for these people. Let’s pretend commercial buildings aren’t owned by any financial institution, but instead represent millions of security tokens maintained in wallets, generating a 10% constant income and the ability to sell whenever we want.
Decentralized systems will change the financial market
Tokenization is now a reality. It combines traditional finance and blockchain. Companies and government bodies are exploring tokenization.