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What is a Smart Asset?

How tokenised securities are reshaping the investment landscape.

Finance 3.0 is the more efficient, more inclusive and more transparent future of the global financial system. It’s a new world of capital markets, and it’s driven by digital technologies like blockchain and tokenised securities. But what, exactly, is a tokenised security? Why do we call them Smart Assets? And what makes this type of asset so different to the old investment model?

The first thing to know is that tokenisation is the process of creating a digital, unique, irrefutable representation of a real thing on the blockchain. That thing could be anything from a physical asset (like a work of art) to a financial asset (like equities or bonds).

According to research by Boston Consulting Group, the market for these Smart Assets is expected to grow from less than $1 billion in 2023 to about $16 trillion by 2030. In the United States, fixed-income securities like US Treasury bills (T-bills) are already being tokenised, with more asset types set to follow.

Tokenisation gives investors and issuers far greater flexibility, accessibility and transparency. Take bonds, for example: while conventional bonds are issued on paper, tokenised bonds are represented as digital tokens – the equivalent of notes in the world of traditional finance. 

In the traditional market, an issuer would want to raise $100 million and would put out a bond to do so, stating that at some future date, they will repay the investor, and for the risk that the investor takes in lending them the money, that they will pay interest on the loan. This bond is sold as notes or contracts as very few investors have $ 100 million to invest. These contracts are usually in denominations of $ 1 million meaning that only 100 contracts exist.

In the digital world of tokenisation, the bond is created in a similar fashion but instead of having paper contracts, we have smart contracts programmed into a token. One token represents one contract. Therefore one token will also have a value of $ 1 million and 100 tokens will exist.

But still, very few investors have $1 million to invest. Luckily tokens can be traded in fractions. This fractional ownership, in turn, allows a wider range of investors to participate in the market.

As digital assets, these tokenised or Smart Assets – can also be traded 24/7. They’re not bound by limited trading hours. And neither should you be. On the blockchain trading and settlement occurs nearly instantly. Making the transfer of ownership quicker and easier, streamlining the settlement process, eliminating the need for third parties and reducing admin costs.

The third point to note is that tokenised assets are created on the blockchain and controlled by smart contracts which execute automatically. That’s what makes them “Smart”. 

The tokens themselves act as digital certificates of ownership when you hold them in your account. And because they’re on a blockchain, these Smart Assets have far greater levels of transparency, security, and traceability, compared to traditional assets.

The Future of Finance

As Smart Assets become more and more integrated into digital capital markets platforms like Mesh, you can expect to see the entire financial ecosystem being reshaped.

“The future of finance, or Finance 3.0, is all about making the capital markets more accessible,” says Connie Bloem, Mesh co-founder and Managing Director. “Through Mesh we make this possible, with our decades of Fintech and Capital Markets experience. 

Our focus is on simplifying the process of raising capital and enabling this through our blockchain-based multi-sided capital markets platform, giving businesses a viable and reliable alternative to raise the capital they need to fund their growth.”

Mesh. Open capital markets