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The impact of tokens on the financial industry

The impact of tokens on the financial industry

As everybody knows, the year 2020 was defined by a dramatic acceleration in digitalization and digital engagement. As a result, the financial sector in 2021 has reached new levels. But this also occurred because of the Covid-19 pandemic.  

Exchanges, mobile transactions, and personal trading apps all saw record transaction volumes, among other things. Everything has been digitalized somehow, and cryptocurrency prices have risen significantly, with more initiatives and projects seeing the light of day.  

Everything is now just a click away, from buying an airline ticket to a new hoodie, but buying stocks or getting a mortgage takes more time in terms of traditional finance. But the crypto sector is more dynamic than the traditional financial one, so it is possible to unlock the value of real-world assets and exchange them in real-time. But, since there have been so many changes, let's see how token assets disrupt the current financial business.  

Tokens assets and their advantages  

The main thing about token assets is the procedure in which they link the real and virtual worlds. In a digital environment, assets and their trading, storage, and transfer are all possible. To put it another way, tokenization may convert nearly any asset, real or virtual, into a digital token, and enable digital transfer, ownership, and storage without the need for a central third-party/intermediary. 

A digital token can thus be defined as a piece of software that contains a unique asset reference property or legal rights. The advantages of utilizing the token are that it is a rapid and straightforward process, that transactions are recorded in a public list known as the blockchain, and it eliminates intermediaries.  

Several token standards have arisen, including the ERC 20 standard for fungible tokens, the ERC-1400 standard for security tokens, and the ERC 721 standard for non-fungible tokens. However, this does not exclude the creation of other types of tokens, such as SPL token, Solana's ERC-20 equivalent. A platform that uses this type of token is QUID Token, which may become the second most liquid digital asset on the Solana blockchain after SOL.  

The QUID effort delivers a perfect store of value for holders and the ultimate utility and social token for developers who want to use a local currency for their DeFi and other decentralized projects. Going back to the token standards, each token created on these three examples offers something different.  

For example: 

  • ERC-20 transfers value between users, allowing someone to spend the value on one's behalf. 
  • ERC-1400 requires a certificate, authorizes an operator to transfer a security token on one's behalf, and has several regulations.  
  • ERC-721 is used to transfer ownership of a specific asset between users, authorize an operator to transfer a particular asset on one's behalf, or transfer all assets on one's behalf.  

How do tokens disrupt the financial industry?  

The direction that tokenization is taking is far beyond what the financial industry has ever imagined. The thing about tokenization is that it can make the financial system more accessible, cheaper, faster, and more manageable, potentially releasing trillions of dollars in currently illiquid assets and dramatically increasing trade volumes.  

But, before we move any further, there are some impediments that, for the time being, blockchain technology cannot solve. And they revolve around regulatory alignment, especially given that blockchain-based platforms are inherently decentralized. 

Security rules are often technology agnostic, which means that security tokens may fall within the entire scope of relevant security regulations, which might vary significantly from jurisdiction to jurisdiction. This is true not only for the creation and sale of tokens but also for their trading on secondary markets.  

As a result, many of the benefits of tokenization are compromised if restrictions prevent the free and worldwide trade of security tokens. These challenges can be overcome with the help of people at all levels. Only institutions that actively engage with technology and plan for the future will prosper.  

Conclusion 

Tokenization enables the formation of a new financial system that is more democratic, efficient, and broad than anything we’ve ever seen before. Tokenization is already a reality, and everyone should be aware that it will be the next big thing in the financial system.  

Some firms are quickly constructing their own infrastructure. In contrast, the traditional market infrastructure appears to be laying the road for widespread adoption. 

Disclaimer: This trading analysis is provided by a third party, and for informational purposes only. It does not reflect the views of Crypto Daily, nor is it intended to be used as legal, tax, investment, or financial advice.

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