Why invest in tokens and not the current financial market?
Why invest in tokens? Why not keep your investments in the traditional financial market? Why choose tokens and not stock markets?
Investors are trying to understand how asset tokenization is revolutionizing the financial market and whether it makes sense to direct part of their investments to this modality.
That’s why I decided to present a text that solves once and for all the question of why to invest in tokens and not in the traditional financial market.
Asset tokenization offers investment opportunities far beyond those made possible by the stock exchange.
But tokens can also represent a company’s right to participate, equity tokens. In this case they work “like stocks”, and are security tokens, one of the 4 main types of tokens.
Shares represent parts of an organization or company and serve to authenticate partial ownership of those who own them. Thus, whoever owns a share is also the holder of a percentage of the company represented by it.
The main interest of companies when making shares available to be acquired publicly is to raise funds.
But why invest in tokens?
Tokens can operate exactly like stocks, that is, representing the participation of companies. They are only lesser known for being relatively new, an evolution built on the blockchain.
Tokens also represent ownership of a fraction of a business and have their values linked to the valuation of what they represent, just like stocks.
However, there are some benefits to investing in tokens over investing in stocks. We’ll talk about them next.
The differentiators of investing in tokens
There are several differences between tokens and stocks that show why investing in tokens can be so good.
Check out some of them below:
- Structuring: the tokens rely on blockchain and smart contract technologies, which guarantee security.
- Autonomy: investors can store their tokens on their own, without depending on brokers.
- Selling: Token trades are not stock exchange dependent and can be carried out at any time of day, every day of the week.
- Anti-fraud: blockchain technology also guarantees the registration of all transfer information and cannot be defrauded or altered.
On top of this, equity tokens are publicly offered to investors through an STO (Security Token Offering), which is similar to IPO (Initial Public Offering) but has its own advantages:
- Agility in going public: companies are able to have their tokens traded much faster than it would take to make an IPO.
- Trading practicality: Through STO, startups can offer their tokens much more easily.
Access for smaller investors: Token values in STO are often much cheaper than those in the stock exchange.
Now that we understand a little more about the benefits of tokens over stocks, let’s delve into the advantages that tokenization offers as a whole.
What are the advantages of tokenization?
If you’re still wondering why investing in tokens, be aware that company ownership is just one example of assets that can be tokenized.
Tokenization is nothing more than turning a real asset into digital parts so they can be traded more easily.
This means that by investing in real asset tokens, you have the possibility to generate returns from assets that you would never have access to on the stock exchange.
In addition, there are 5 resources that show you how you can take advantage of tokenization:
- Access: tokenization makes it easy for anyone to invest in high-performance assets and the liquidity for the owners of these assets is much greater.
- Protection: as mentioned earlier, blockchain and smart contracts support the safety of investments in asset tokens.
- Transparency: all token trading records are saved in the blockchain and can be consulted by participants at any time.
- Efficiency: by reducing the number of intermediaries in the process, tokenization reduces the costs of operations and makes them more agile and less bureaucratic.
- Divisibility: Tokens are always small fractions of assets, this allows you to invest in unusual assets so far and for small amounts.
Due to the many benefits that tokenization has, there are several industries that already tokenize.
If so far you have not been convinced of the advantages of tokenization, let’s explain a little more about the technological and legal security of tokens.
Why is investing in tokens technologically secure?
As you saw earlier, tokenization is built on extremely well-protected technologies.
Now, let’s describe each of the security modalities for you to understand why investing in tokens is safe:
To understand why investing in real asset tokens is technologically secure, you only need to know one word: blockchain!
The blockchain is also called trust protocol, because it is where all information related to transactions is recorded: issuers, recipients, dates, token quantities, etc.
Regularly, a block of information is formed and dated. These blocks are coupled together forming a chain that indicates which transactions have already taken place and when.
All this in an encrypted way, that is, through complex codes.
These data only form these blocks after being validated and approved by the transaction participants.
What makes the blockchain extremely secure is the fact that blocks are interdependent. So, an attempt to change any one of them becomes impossible, as it would be necessary to decode all the other blocks.
In this way, all data related to tokens are registered and protected by this technology, which is decentralized (they are not stored on just one server).
Due to the blockchain, the chance of any intrusion or tampering during asset tokenization is virtually nil.
But, in case that wasn’t enough, investing in tokens is even safer with Smart Contracts technology.
Smart Contracts do the work of a traditional contract, but in an optimized, cheaper and safer way. They are the ones that define the clauses of tokenized rights.
They are elaborated during the Issuance stage of the tokenization process and carry all the rules previously defined in the legal scope.
Smart Contracts are also immutable, as is blockchain data, and there is no possibility of fraud. Because they are pre-programmed, they are activated quickly and conveniently through clicks.
These digital contracts ensure that the rules, which are always very well described and accessible to the parties interested in the negotiation, will be respected.
So far, we’ve explained that investing in tokens is safe. Now, let’s talk about the risks associated with investing.
What are the main risks when investing in tokens?
Investing in tokens has the same risks as any other type of investment.
In reality, many types of tokens may pose lower risks than those related to the stock market, but let’s focus on general risks, which involve all tokens.
The first risk for investors is that of the market. It is associated with uncertainties that can generate changes in market value, such as interest curves, exchange rates and volatility.
Issues relating to the legislation and taxation of countries also enter into market risk, especially when it comes to changes in these rules.
The second risk is credit risk, which are present in tokens that represent debt and act as an anticipation of receivables. In this case, the risk is the non-payment by the debtor.
Finally, the third main risk is liquidity, but in this case it is usually lower than in traditional investments, as tokenization facilitates the liquidation of assets.
In any case, it is still possible that you may find it difficult to sell your tokens or only find buyers offering values below your expectations.
As you can see, all the main risks of investing in tokens are present in other types of investments, but they can be mitigated with some practical attitudes, such as:
- Know the right you are acquiring
- Make long term strategies
- Conduct research on the token’s asset and issuer
- Read and understand the terms and conditions.
Finally, it is not possible to understand why investing in tokens is a good idea without talking about the transformation that this modality is generating in the financial market.
Why does investing in tokens change the Financial Market?
In view of the current scenario in the world, which requires increasingly faster information and operations, it is important that the financial market be modernized and offer safer and more agile solutions for all processes.
All of this can be accomplished by tokenizing due to the blockchain.
Furthermore, it is essential that access to investments is increasingly democratic and accessible to small investors.
This is one more change that tokenization offers.
It is also necessary to have data protection, transparency, cost reduction and agility in transfers and operations.
Again, these are elements that investing in tokens offers by facilitating processes such as custody, settlement, clearing and by reducing intermediaries between investors and asset owners.
But the main way in which tokenization will change the current financial market is because of investor behavior.
After all, tokenization makes it easier for investors to have custody of their assets in the form of tokens and have greater control over their own capital.
Tokens are already on the market and can further diversify your investment portfolio!
There is no point in leaving the stock market, but it is well worth it to expand your access to assets and opportunities for returns.
After what we’ve brought you here, do you still have questions about why investing in tokens? Ask your question or leave your opinion in the comments.
And take the opportunity to follow Liqi on Instagram and stay on top of all the news in the universe of asset tokenization!
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