Tokenization of Real-World Assets and Liabilities

Financial service providers along with the blockchain companies are working through ways to tokenize regulated liabilities across a blockchain application called Distributed Ledger Technology (DLT). Unlike tokenizing the Real-World asset that covers a wide range of assets that can be tokenized, liability tokenization is now limited to regulated liabilities that we will go through shortly in this article.

Tokenizing tangible assets as well as liability through blockchain is making fast paced changes across the markets, so it’s a good idea to make yourself familiar with the technology and its applications.

What does regulated liability mean?

For now, the liability tokenization refers to digital money that is regulated. There are a few digital money types that are considered as regulated liability. Here they are:

• Central Banks Money

There are basically two types of money that are issued by central banks around the world. The first one is the money circulated across their country and the second one is the reserved bank money. Both types are categorized as regulated liability of central banks.

• Commercial Banks Money

The money that is issued by commercial banks in favour of their customers and stored in their customers’ account are considered as the regulated liability of the commercial banks.

• Electronic Money

Non-Bank entities like e-payment companies around the world issue money in favour of their customers. That digital money is the liability of those companies in favour of their customers and is regulated.

There are other types of digital money such as cryptocurrencies and stable-coins as well as real-world asset tokens that are not considered as liability, so they are not regulated liabilities.

How does regulated liability tokenization work?

The concept is to bring all regulated liabilities as detailed above, into the blockchain network. The goal is to replace traditional banking and financial systems with a unified 24/365 system that is programmable and customizable, where the transactions are settled instantly. 

The system is now called RLN which stands for Regulated Liability Network, where the network is operated within a shared multi-entity distributed ledger. The shared ledger which is now called Distributed Ledger Technology or DLT is the platform where all industry participants share their tokenized liabilities data. Within such an ecosystem, the regulated liabilities can be minted, burned and transferred instantly across the blockchain network and borders with no limitation and human interference, as the whole transactions are administered by smart contracts.

RLN advantages for the International Monetary System 

Regulated liability tokenization is at its early days. Central and commercial banks as well as DLT firms are working hand in hand to make it happen, though it is now at feasibility study stage. However, the goal is to make a more efficient, secure and transparent monetary system across the globe. Here are the main advantages of regulated liability network:

• Multiple Assets Exchangeable

RLN is able to exchange multiple asset types across the network. Different types of currencies and regulated assets can be settled within RLN.

• Programmable

Like other blockchain applications, RLN makes usage of smart contracts possible for the sake of automating actions and settlement 24/365, with no human interference.

• Borderless

RLN as a global network supports domestic and international actions 24/365.

• Instant settlement

RLN by utilizing smart contracts and eliminating middlemen, makes instant settlement possible for international payments.

• Better security

Blockchain network, due to its decentralized nature, decreases the risk of fraudulent activities. Also, by unifying the ledgers in one network and making instant settlement possible by utilizing smart contracts, the international monetary system becomes more secure than before.

Final words

Blockchain is making big changes to all aspects of our world. It is very likely that many traditional ways of living and making money will be fading away and new concepts are on their way to replace them. As a quick example, blockchain is changing the traditional way of investment in the real estate sector by making property tokenization and property fractional ownership possible. In such a fast-paced world, particularly in the digital sector, it’s quite a good idea to make yourself familiar with blockchain, Real-World asset and liability tokenization and a lot more, for the sake of coping with the changes.

Even though those concepts in general and liability tokenization in particular are in their early stages, equip yourself with the required knowledge, to move with the changes and benefit from the opportunities on the horizon.