The Complete Guide to Asset Tokenization

As the world continues its digital shift, asset tokenization is allowing fans to bring their physical memorabilia into the electronic world. Now, businesses can help with the transition while making money along the way, tokenizing their own assets as physical backed NFT collectibles. Here’s a complete breakdown of how the tokenization of assets works, the benefits it brings, and how organizations can get involved.

What Is NFT Asset Tokenization?

NFT asset tokenization is the process of minting and selling an NFT asset, which could be anything from a sports jersey to artwork. Once an asset is minted as an NFT, it can be bought, sold, and traded on a global, 24/7 marketplace. These markets give companies incredible market access, allowing them to connect with global audiences for their products in a cost-effective manner.

NFT creators earn a royalty payment every time one of their NFTs is sold on secondary markets. They’re also a highly liquid form of asset, so successful launches can result in frequently traded NFTs that earn profits long-term. Not to mention, NFT prices can rise over time, and given that royalty payments are percentage based rather than a flat flee, successfully marketing an NFT project can generate a sizable ROI.

For more information on the basics of NFT tokenization, read our blog post “What Is NFT Tokenization?”

What Are Tokenized Assets?

Tokenized assets are physical backed NFTs, meaning that they’re associated with an actual item. A tokenized asset could be anything from a sculpture to a collection of items, such as rare merchandise. Possessing the NFT entitles the owner to the physical item, giving the NFT an element of dual ownership.  

While having a physical item on hand is pleasing, it isn’t necessarily practical, especially for large or delicate items. Typically, an intermediary will ensure that the physical item backing an NFT is kept in a vault, allowing the owner to rest easy knowing their item is protected. Some intermediaries can even insure the physical and digital tokenized items, which is ideal. This also simplifies the process when it comes time to trade that asset, as neither the buyer nor the seller has to worry about the item being damaged during shipping. Physical backed NFT owners can redeem their item by burning their NFT, which eliminates the NFT from the blockchain. The physical item is then shipped to them.

Tokenized asset transactions are transparent, too, so there’s never any doubt over who should be in possession of the item. All the information is stored on a global ledger on the blockchain, which anyone can view.

For more information, read our post “What Are Tokenized Assets?”

What Assets Can Be Tokenized?

Nearly anything you possess and can transfer ownership of is eligible for the assets tokenization process. Guitars, cars, real estate, trading cards, collectible pins — the list goes on. And while the options are practically limitless, organizations that are looking to tap into asset tokenization as a new revenue stream need to remember that they’re breaking into the global market, so their tokenized assets should have global appeal. Here are some examples of items that are good fits for tokenization:

• Paintings: Many NFTs exist solely as part of digital art collections, but physical paintings are great candidates for asset-backed tokenized NFTs. The F.or Y.our R.eal E.ntertainment NFT painting is a prime example. While it has roots in the Fyre Festival, the painting has a custom NFT chip inside of it that can authenticate its token counterpart. It’s an impressive application of NFT technology, and a blueprint for how other NFT paintings can be handled.
• Exclusive memberships: Yes, even memberships are fit for asset tokenization. The fashion industry has proven to be particularly fond of NFTs as a gateway to exclusive memberships that allow members to access exclusive merchandise and early drops. For example, Wild Bunch NFT holders were given access to the second floor of Warren Lotas’ Los Angeles store, which served as a high-end hangout space where members could shop for exclusive clothing.
• Collectible-backed NFTs: Tokenizing collectibles is an approachable way for organizations to open a new revenue stream. Collectible tokenization is scalable and benefits from the vault storage that goes hand-in-hand with physical backed NFTs. It’s also the broadest category of assets that can be tokenized, covering everything from sports cards to exclusive sets of commemorative pins.

Want to stay in the know about assets that are being tokenized? Dibbs has you covered. Partner with us today to stay updated.

To learn more about which assets are good fits for tokenization, read our blog post “What Assets Can Be Tokenized?”

Why Tokenizing Physical Assets Is a Game Changer

Tokenizing physical assets benefits both businesses and collectors. It creates a broader market of merchandise for collectors to engage with, while also opening new monetization opportunities for businesses to pursue without making a large investment.

A key part of asset tokenization is successfully managing the physical item’s “digital twin.” It’s not enough to give a simple digital representation of the item; the digital twin has to have that X-factor, such as the provenance of the item. Digital and real-world perks are instrumental in making an engaging, desirable product that’s more conducive to trading.

Luckily, trading NFTs will be an integral part of web3, the next version of the internet. Web3 will be a decentralized network that’s built on the back of the blockchain. Many — if not most — web3 transactions will be facilitated through NFTs, which encourages regular trading. By tokenizing physical assets now, businesses are essentially getting an early foothold in the future of commerce.

For more information on the importance of tokenizing physical assets, read “Why the Tokenization of Physical Assets Changes the Game for Brands, Businesses, and Collectors.”

How to Tokenize an Asset

The asset tokenization process is relatively simple, but there are some nuances. Here’s an overview of turning a physical asset into a digital one:

• Audit the asset. Whether it’s a set of collectibles, real estate, or memorabilia, each asset will need to be audited to verify its unique traits and value.

• Choose a token. The blockchain is capable of producing a number of tokens, though NFTs tend to be the best for tokenizing physical objects.

• Understand regulations and guidelines. Research any legal requirements that might affect a tokenized asset. These standards can dictate the countries a token can be offered in or how tokens can be issued.
• Choose a tokenization platform. These platforms will offer tokenization as a service, helping organizations create, sell, and manage their tokenized assets.
• Develop smart contracts. Tokenization providers will handle most of these details, but organizations will need to decide for themselves how many tokens they want to create and distribute.
• Vault your asset. Tokenization platforms will collect and store the physical assets backing NFTs in secure vaults, where they can ensure the asset’s quality and authenticity.
• Distribute tokens. Finally, organizations can list tokens on marketplace platforms, which many tokenization services will offer.

That’s all there is to it. While there will be some legwork involved, with the right partners, the process doesn’t have to be overwhelming.

Our blog post “How to Tokenize an Asset: A Step-by-Step Guide” has more information on the process.

Regardless of how an organization chooses to tokenize its assets, it’ll need a partner. Dibbs is here to help. Offering asset-backed tokenization services and advice from industry experts, Dibbs is built to help organizations leverage their IP in exciting new ways. The Dibbs marketplace is equipped to help your business break into new markets around the world, all while providing insurance for the digital and physical items that comprise your physical backed NFT collectible. Interested in learning more? Contact us today.