The term ‘asset-backed token’ speaks for itself. It's where the storage, value, and management of an asset, such as gold, are transferred and represented by digital tokens on the blockchain.
The tokenization of an asset doesn't affect the physical asset itself. Instead, it changes how that asset's ownership and transfer of value are managed. Asset-backed tokens, like gold-backed crypto are essentially tradable IOU tokens representing the full value and ownership of the real-world asset it corresponds to. These tokens can be purchased, traded, and held exactly like any traditional asset, just digitally.
The basic concept of tokenizing assets isn't all that new; the financial industry has been digitally trading digital assets such as equity in a company or commodities such as silver in the form of securities, ETFs, options, or futures on centralized trading platforms for decades.
Asset-backed tokens will ultimately cause traditional platforms like these to become obsolete as a token transaction on a peer-to-peer network eliminates the need for intermediaries. Blockchain technology makes the entire process quicker, safer, and accessible for retail investors to own crypto gold or silver-backed coins; it also significantly reduces end-product costs.
Asset-backed tokens such as gold-backed crypto provide many game-changing advantages over traditional systems bound to have revolutionary impacts on the global financial ecosystem. Some of these include:
One of the main advantages of tokenized assets like crypto backed by gold is that tokens are highly divisible, meaning that assets can simply be divided and distributed to the technical capabilities of the token.
This is especially beneficial for non-liquid assets such as property or art, as you can now obtain fractional ownership of a house or a work of art that would otherwise be outside your scope.
The transparency blockchain technology provides as a public distributed ledger verifies ownership of an asset with 100% certainty at all times. It also mitigates any possible intervention from external central authorities or traditional human error-related risks.
Some assets such as gold, equities, bonds, property, rare coins, and diamonds are reputable for their price stability. In addition, tokenized assets, such as crypto gold or digital silver, can be utilized to hedge against volatile markets or against depreciating fiat currencies to preserve spending power.
An Asset-backed token gives the owner undeniable proof of ownership of the asset that the token is correlated with, even more so than traditional asset ownership. For example, the digital evidence of owning a gold standard token is immutable and cannot be duplicated, altered, seized, or destroyed as paper can.
Automated smart-contract enabled platforms built such as a metal-backed blockchain protocol eliminate the need for third-party processes such as brokers, transfer agents, registrars, clearing firms, custodians, etc., drastically decreasing transaction costs.
Old systems dealing with digital asset transactions such as securities, ETFs, and futures cost investors a lot of time as they were required to go through several processes that can now be renowned for inefficiencies. On the other hand, blockchain transactions are automatic and almost instantaneously anywhere globally.
Transfer of value through tokenized assets are much more efficient than physical asset transactions, especially for large industrial transactions such as 1,000 barrels of oil.
International asset ownership has always been possible, but it's never been as straightforward as holding a digital token. This means users worldwide can own gold-backed crypto, regardless of their location.
Of which there are very few scaled examples, almost all asset classes can benefit from the unique attributes gained through tokenization. Some of these include:
Gold, silver, diamonds, oil, wood, etc., can all technically be tokenized on the blockchain. Cryptocurrencies backed by gold or silver can transfer value and ownership efficiently.
Some tokens exploit the stable price of commodities such as precious metals to create what is referred to as a 'stablecoin.' For example, silver and gold stablecoins can be used as a hedge against volatile markets or inflation, for non-volatile cross-border payments, or as a store of value when raising capital funds, such as in ICOs.
Tokenized securities such as corporate stocks or bonds open the market up to the rest of society by removing the need for entry barriers and intermediaries, which previously only sophisticated investors chose to deal with. Tokenized company production is now also a possibility, ZrCoin, for example, is pegging its token value to the company's production of industrial materials.
Intangible assets with no physical presence, such as trade secrets, patents, copyrights, and trademarks, can all be easily tokenized.
This provides efficient transferable ownership on a transparent system. Joint intellectual property ownership also becomes an easy possibility. For example, a tokenized patent could be distributed among all its investors, and then the royalties are paid out accordingly to their share of ownership.
Tokens are also being collateralized with fiat currencies. Currently, the most popular fiat-backed token on the market is Tether which claims to be backed and pegged to USD. As they serve as an effective digital store of value, these tokens are also categorized as stablecoins.
Property investors can own fractions of collateralized property tokens, regardless of their location globally. Tokenized property on decentralized trading platforms eliminates fees and intermediaries such as agents. The smart contract system can distribute the generated rental income fairly and automatically between the countless owners of the property.
Although not technically an asset, it's also worth mentioning that debt collateralized with tokens is something the financial world will greatly benefit from. Bundles of tokenized debt can be sold to investors looking for specific credit risk and duration.
Physical collectibles such as modern arts or classic cars to digital collectibles such as Cryptokitties or tradable 'skins' within videogames are all tokenized. Verification on the ledger ensures legitimacy and eliminates any duplicates or fakes trading on the market.
All these assets are already heavily traded daily. The blockchain makes existing supply chain systems in the financial industry significantly more efficient. These technological advances may sound incremental, but they're as revolutionary as moving from paper letters to email or hand-built cars to Henry Ford's production line.
In both cases, a dramatic rise in efficiency leads to extensive market growth.
Asset-backed tokens will undoubtedly go mainstream as they present superior solutions to traditional systems in almost every aspect.
Out of all the assets that add value through tokenization, as mentioned above, gold-backed crypto looks to be an absolute game-changer carrying the potential to create the most value throughout the financial ecosystem.
One of the more unique players that stands out in this young yet over-saturated market is AurusGOLD (AWG).
The innovative fintech organization is in pursuit of creating a globally-viable payment platform through tokenizing gold on the Ethereum blockchain. Each AurusGOLD token is 100% backed by 1 gram of vault-secured gold. In addition, the platform also operates a second token AurusDeFi (AWX), which enables its holders to earn rewards generated from the AurusGOLD (AWG) tokenization and transaction fees.
Aurus leverages gold's universally recognized price stability to create the most effective gold stablecoin payment solution. The price stability of AurusGOLD as a properly gold-backed token becomes automatically pegged to the market price of gold through arbitrage. If the token price falls below the gold market price, users are incentivized to purchase AurusGOLD and vice versa.
AurusGOLD eliminates all prior inefficiencies that physical gold carries as a currency and resolves the vulnerabilities of current fiat monetary systems. In simple terms, crypto gold essentially revitalizes the gold standard, but this time as a global digital currency.
Out of all the various stablecoin solutions competing to solve the same problem, why does AurusGOLD's crypto backed by gold have more potential than its competitors? As discussed above, various asset classes can be tokenized, each utilizing the characteristics of an asset to create value and create use cases in different ways.
Not all assets can be tokenized to function as an effective stablecoin, in fact, very few can. An asset's characteristics heavily influence the corresponding token's overall effectiveness. Desired attributes for tokenized assets include; price stability, imperishability, fungibility, divisibility, and storability. Out of all asset classes, gold, along with a few other precious metals, carry these characteristics best.
Some but not all of these characteristics are found in diamonds. Diamonds can significantly vary in terms of qualities such as clarity, shape, and size, meaning that they aren't fungible. They cannot be melted down or cut in half without losing value like gold can. Also, diamonds aren't exactly reputable for their price stability.
Fiat-backed tokens such as Tether (USDT) technically carry all the desired characteristics for tokenization, so in theory, they should function effectively as a stablecoin. The problem is that USDT automatically inherits the vulnerabilities of fiat currencies, such as centralization, financial crisis, volatility, unpayable national debts, and hyperinflation.
Exploring the possibilities of tokenized assets, like crypto gold, reveals how many positive opportunities are created across different market sectors. Moreover, it makes it very clear how revolutionary such a technology is and how it can positively benefit the world.
With Aurus, we aim to be at the forefront of this revolution, bringing value and stability to the financial and crypto markets.
Aurus links: Website | Twitter | Telegram | Newsletter | Youtube | Email