How Asset Tokenization Can Help Small And Medium Businesses
Digital currencies made a lot of buzz in the past 10 years. In addition to a vast amount of terminology (cryptocurrency, blockchain, validation, etc.), hundreds of coins have appeared. But despite the significant figures for market cap, the actual impact on the economy has not yet been felt.
The total market cap of crypto coins is estimated at $2.2 trillion, while the same indicator for the world economy is almost 40 times higher – $85 trillion.
Sure, digital currencies have insufficient regulation and complex tools for working with them. Therefore, there are quite a few high-risk people in the digital coin ecosystem. And recent attempts at mass crypto release by Facebook and Telegram have infuriated the authorities.
However, there are safer assets called stable tokens. They are pegged to tangible assets. Therefore, not only large corporations but also small and medium-sized businesses are interested in it. Let’s take a look at how tokenization can help entrepreneurs.
Tokenization is the process of digitizing an existing or future asset. Investors and business clients can buy the received tokens. You can trade such assets on crypto exchanges and exchangers, and the income can be used to finance the project.
Essentially, a token is a digital agreement (smart contract). Its terms are unchanged from the moment the asset is placed on the online platform. Therefore, the buyer gets more control and confidence in the future.
By receiving the token, the investor receives clear rights and opportunities associated with the activities of the issuer’s business. The terms of the agreement are indicated at the time of the token purchase and are written into its program code.
When issuing tokens, a business limits its maximum number in circulation. It depends on the business niche, the nature of the relationship with potential buyers, and other nuances.
Benefits for SME
Now let’s talk about the benefits of tokenization for small and medium-sized businesses. They are critical in a situation with an economic crisis amid the COVID-19 pandemic. Here are the benefits of issuing tokens:
Tokenization will help to attract additional investments quickly
Many startups (especially in the digital field) have a community around them. It’s a group of people who actively participate in the project or follow its progress. The presence of such a group significantly increases the efficiency of the business.
Here’s a basic example: a restaurant has a community (customers) that love the food or atmosphere. Regular visitors have a direct interest in keeping their favorite place alive. They can be actively involved in the development of the project. Therefore, tokens are more than ever suitable for motivating the community in solving business problems.
Many offline businesses have been forced to shut down for the duration of the quarantine. It leads to significant losses. And the growth of such losses endangers the restart of the business after the pandemic.
If a company is unable to provide services temporarily, it may choose another tactic. For example, provide clients and investors with commitments that can be fulfilled once the entire operation is restored. Tokens meet the role of such obligations.
By selling digital assets, companies can get funds to cover running costs. For example, to ensure a constant flow of customers through the purchase of tokens.
A big step into the digital future
Business tokenization is one of the critical stages of building the digital economy. Further, token payments allow putting cash on the back burner. There are other benefits as well:
- business acceleration (due to the high level of automation);
- reduction in operating costs.
Creation of a secondary token market and increasing the capitalization of the project
The process of digitizing assets is pretty straightforward. To organize the first round of ICO, you don’t need to hire lawyers, auditors, and investment consultants. In addition, tokens issued through the crypto exchange take part in trading. It has a positive impact on the business:
- attracting new investors;
- increasing the value of the token;
- raising chances for the success of the entire token sale.
So, let’s sum it up. Tokenization allows you to raise extra capital and simplify operations. Moreover, the token sale can increase the value of your entire business. Therefore, digitizing assets is extremely promising. So, small and medium-sized companies can achieve their goals.