By Adam Zbar, Founder and CEO of Hamsa
In recent years, banking platforms have begun to integrate digital assets into their portfolios, as a way to diversify investment profiles while simultaneously addressing numerous lending requests that need to be fulfilled. Importantly, this shift has the potential to open the door to the $80 trillion untapped capital from the globally affluent to participate in the alternative asset market for the first time.
Alternative assets, an exclusive, relatively illiquid asset class, has grown substantially since the financial crisis in 2008, reaching over $11 trillion in assets under management. This highly coveted class, which includes private debt, private equity, real estate, commodities and other non-public asset classes, has grown rapidly in recent years as investors seek portfolio diversification and higher risk adjusted returns. However, given its restricted access and unique nature, there remains, particularly in emerging markets, a $5 trillion gap between businesses needing investment and the funding available from traditional sources.
With the advent of smart, rich data real world asset tokens, alternative asset investments can now run on an open ledger where each transaction is auditable and secure. Utilizing this rich data to inform, track and streamline investing is helpful to set a new transparent lending practice standard. Smart contracts tied to these asset tokens can automate trade settlement, radically reducing back office costs. Together, these new technologies have the potential to unlock the alternative asset market to a much wider investor audience.
Rich Data holds the key to confident lending
Tokenization has long been touted as the future of lending; however, traditional tokens have only supported minimal data, reducing their ability to serve as a trusted instrument of value. The emergence of smart, rich data asset tokens create the critical layer of trust that’s been missing in the lending ecosystem. Importantly, this data can show investors historical information about the asset, provide financial background on the organizations involved, and even provide dynamic updates on the performance of the asset once an investor has made an investment. While centralized technologies can also hold rich data, it is the ability of all permissioned participants to see the same data across a decentralized ledger and an associated data layer that is the key to unlocking liquidity for the alternative asset market. The richer the data, the more informed an environment for investing we can create, which in turn leads to confidence and trust in the growing demand for real world asset investing globally.
Fractionalizing rich data tokens opens up opportunities
The use of smart, data-rich tokens also allows for an underlying asset to be fractionalized and bought in accessible units. Asset fractionalization is an exciting prospect for investors as it provides access to relatively exclusive asset classes, like real estate and private credit.
It’s not that fractionalization cannot be done within the traditional investment sphere, but rather that by tokenizing real-world assets these transactions are available to DeFi lenders, and benefit from all the attributes of making a transaction on the blockchain, particularly as it relates to the automation of trade settlement.
Middle office tasks become more efficient thanks to rich data tokens
Tokens carrying rich, accurate and up-to-date data can play a major role in streamlining middle-office tasks. Having a dynamically-updated, single source of truth for any given asset can reduce middle office work such as reporting and auditing, and reduce the reliance on intermediary agents in securing a lending transaction. Furthermore, When combined with smart contracts, major aspects of trade settlement can be automated, radically increasing transaction speed and bringing transaction costs down. As the cost of lending is reduced, this opens up the opportunity for lenders to originate small and mid-size loans, which can unlock trillions of dollars of unmet demand for financing.
Key functions that rich data tokens can assist with include:
- Authentication: Token secures the details of a transaction; information cannot be changed.
- Consolidation: Tokens provide a single permission-based location, much like a data room, for all information connected to an asset
- Automation: Tokens can streamline daily operations, providing real-time information and can be combined with smart contracts to automate transactions
- Access: Tokenization of private credit assets can enable accredited investors to access new investment opportunities
- Cost-reduction: Tokenization can help companies save on infrastructure costs that can be put toward business growth.
Rich data tokens at the heart of the DeFi recovery
2022 was a year of reckoning for many businesses in the crypto and DeFi worlds, but in the aftermath, we are seeing a lot of positive change. A much-needed emphasis on accountability is the first shift, but also a re-focusing of attention towards real-world assets like asset-backed loans and receivables as the underlying value that’s being bought and sold. Not only do they represent solid investments, but they also represent a real-world use case for DeFi, as we bridge businesses in need of funding with accredited digital investors looking for new investment opportunities.
As a result, centralized platforms are taking down the walls that once surrounded a traditionally exclusive space and are experiencing the intrinsic benefits of blockchain and DeFi. It signals a positive and collaborative future for the traditional and DeFi worlds and one that has smart, rich data tokens at its center.
About the author:
Adam is the CEO of Hamsa, a leading web 3.0 infrastructure company, partnering with the world’s largest banks and financial institutions. Hamsa provides real world asset tokenization, trading and automated settlement and has tokenized over $3B in alternative assets in LATAM, APAC and the US. Adam co-founded Hamsa with Hubert Wu, the technology leader who built AliPay’s global payment system.
Adam is a serial, Webby-winning Silicon Valley entrepreneur. Previously, as the Founder and CEO of Sunbasket.com, Adam grew the e-commerce service from $0-300M in revenues in four years, and sold the company for $550M dollars. Adam started his career at McKinsey & Company.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.