Why Banks Are Adopting Real-World Asset Tokenization? from Elizebeth's blog

Banks are the most predominant sector that has gained vast popularity among people over the past decade. Over the past few years, banks have been exploring utilizing blockchain technology to achieve tokenization. The concept of real world asset tokenization is already on the ground and many financial institutions have started to tokenize a broad array of real world assets. Even some banks are in the process of developing their own blockchain technology to support future projects like settling collateral, managing trade finance involving multiple parties, and handling cash settlements between banks.

The unchangeable blockchain record gives detailed transaction data to banks and their clients. This reduces the expense of operating bulky transaction systems and greatly improves digital portfolio management by offering a unified view of both private and public asset data.

Usually, traditional assets like real estate, commodities, and fine art are hard to sell quickly without losing value. Tokenization eases this process by splitting these assets into smaller, digital units that are easier to buy, sell, and trade. This factor of increased liquidity attracts more which in turn makes the market more dynamic.

Delayed settlement usually happens due to slow, manual handling of assets or because of waiting periods set to manage and reduce the risk of the other party not fulfilling their part of the deal. Tokenization includes built-in transaction details and automates the interest calculation process. Along with instant settlement on the blockchain, assets can be traded securely within minutes. This offers significant advantages to global businesses, which often face delays as assets move through traditional settlement processes.

Tokenization runs based on blockchain technology which is known for providing a transparent, immutable ledger for transactions. Therefore the need for many middlemen in asset transactions is gradually reduced. By simplifying these processes, banks can greatly lower transaction costs and boost operational efficiency. In addition to that, smart contracts automate compliance and settlement processes which further reduces administrative tasks and eliminates the chance of human error.

Tokenization allows people to buy a small part of expensive assets instead of having to buy the whole thing. This makes investing more accessible to everyone and using this feature banks can attract different types of clients, from small individual investors to large institutions, which helps them grow their customer base and manage more assets.

Since tokenization uses blockchain technology the level of security is high. Blockchain makes sure that all transactions are securely recorded on a decentralized ledger which provides a higher level of transparency and trust. With the help of blockchain, investors and regulators can easily track the ownership and history of tokenized assets thus reducing the risk of fraud and improving the overall trust of the financial system.

Blockchain technology allows tokenized assets to be easily traded across borders which in turn provides the ability to banks to offer their clients access to investment opportunities worldwide. In addition to that, blockchain markets operate 24/7, which provides investors enjoy greater flexibility and convenience.

The transparency and immutability of blockchain make it easier for banks to comply with regulatory requirements. Smart contracts can check if transactions meet legal and regulatory standards which reduces banks' compliance work and builds trust with regulators and clients.