In 2020, the number of High Net Worth Individuals grew by 6.3%, while HNWI wealth grew 7.6% just falling shy of US$80 trillion. Capgemini’s World Wealth Report notes that UHNWIs and HNWIs are keen to explore new asset classes such as cryptocurrencies and other digital assets such as NFTs.  While these asset classes might not add up to a significant portion of HNWIs portfolio yet, they are increasingly being seen as a new avenue for investments.

Here are 3 new types of wealth be created in the investment world:

1. Cryptocurrencies:

Crypto is a digital currency designed to work as a medium of exchange through a computer network that is not reliant on any central authority to manage it, for e.g a bank. Research from the deVere Group finds that 68% of high-net-worth individuals (HNWIs) will have invested in cryptocurrency by 2022. While more individuals move towards the digital assets wave, some private banks are catching up. The Swiss bank has already announced a partnership with fintech firm SEBA CRYPTO in February 2019, offering storage, transaction and investment solutions for digital assets.

2. NFTs:

NFTs can represent various properties, including artworks, collectibles, virtual reality and gaming items, domain names, and ownership records using digital wallets that are compatible. This is an increasingly growing field of investment interest in digital assets, with trading in NFTs reaching $22bn in 2021, compared with just $100m in 2020. To add to that, the floor market cap of the top 100 NFTs ever issued – a measure of their collective value – was $16.7bn.

3. DAOs:

DAO, or decentralised autonomous organisation, is an organisation taking roots from distributed ledger technology that is frequently administered by a native crypto token. Many investors are taking an interest in these assets with billionaire Mark Cuban, calling them “the ultimate combination of capitalism and progressivism.”

How does this impact Private Bankers?

Generally, UHNWIs and HNWIs make investment decisions with a personal relationship manager. In 2021, 49 % of advisers indicated that clients had asked them about investing in cryptocurrencies in the last six months, up from 17 percent in 2020. These numbers will only go upwards providing an opportunity for private bankers and wealth management professionals to understand digital finance and its investment opportunities for the mass affluent, HNWIs, family offices and corporate investor.

Essentially, a growing trend in the demand for private wealth solutions for digital asset investing in the coming years. This is based on a combination of the attractive demand level from mass affluent, HNWIs, family offices and corporate investors and the fact that neither current digital asset platforms or incumbent wealth managers are structured to meet their needs.

With this in mind, at CFTE we are designing a new, unique programme for the modern private banker. A programme to help uncover the new wealth of digital finance and be fluent in the new language of Fintech and digital assets so bankers can effectively communicate with their clients. If you are interested you can pre-register today, and if you would like to help us with your feedback, we’ll offer you a free course on NFTs!

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From gold to silver; from oil to gas, tokenization is in full swing! Read now to find out: How, Why and What? 

What is Asset Tokenization?

Asset tokenization is the process of digitising both tangible and intangible assets and transforming them into tokens that may subsequently be kept on the blockchain. One asset does not always equal one token: assets are frequently divided down into smaller portions, resulting in a large number of tokens.

Once an asset has been tokenized and entered the digital realm, it is feasible to hold and exchange it fractionally or entirely, as well as transfer it to other proprietors.

The most basic example is cashing out a bank account. Tokenization is the process of replenishing virtual money at a cashier counter or ATMs, and tokenized assets are the virtual money received. However, it is claimed that any type of financial assets has the capacity to be tokenized.

It is said to include three essential components: the input asset (£100 in cash), entity’s substitution mechanism (bank’s internal infrastructure) and the virtual output (updated balance on the card). When a distributed ledger is used to tokenize an asset, the ledger replaces the bank infrastructure, and cryptocurrency tokens replace conventional digital currencies. In every other way, the procedure is similar to the tokenization of cash within the banking ecosystem, Forex instruments or equity. 

Benefits of Tokenization

To put it another way, the blockchain’s ability to tokenize assets is what sets it apart from banks and traditional financial exchanges. All of these distinctions may be boiled down to the following benefits.

1. Divisibility:

The capacity to break blockchain technology into fractions of various coins is another key feature. It is now feasible to make the market liquid, which was previously impossible. Tokenization divides investment shares into quantities that are accessible to a large number of people (potentially unlimited). The real estate business is the finest illustration of asset divisibility. You don’t have to rent or own the entire property to invest in it.

For example, a $300,000 house may be split into tokens, drastically lowering the investment barrier for many. However, blockchain tokenization is not confined to real estate, artwork, and collectibles, among other assets that have benefited greatly from the technology.

2. Enhanced Accessibility:

The division of the asset into tokens and the ability to partially own an asset after it has been tokenized reduces entry barriers for new investors and for those with smaller investment capacity.The benefit of enhanced accessibility allows a broader investor base to participate in the investment process. 

3. Disintermediation:

When it comes to buying stock on the stock market, there are so many middlemen to trust before making a successful purchase. Each share purchase seems to have a middleman, which raises transaction complexity, costs, and decreases trust and security.

Asset tokenization on a blockchain, on the other hand, eliminates middlemen because the technology is trustless and does not require human verification. This reduces the expense of middlemen, accelerates the investment process, and eliminates the possibility of human error.

4. Transparency:

Blockchains have a technology composition comprising cryptography, mathematical models, economic models, and algorithms. The underlying distributed ledger system makes blockchain technology safe and open to inspection. The blockchains are also immutable. So valid transactions cannot be deleted or changed as any such attempt would leave an easily detectable trace. 

Types of Tokenized Asset

Awareness precedes choice and choice precedes results. Now that we know what asset tokenization is all about, get ready to know the many faces of this process. Broadly, there are four types of tokenized assets each characterised by their different use. These are: 

1. Security Tokens

While the term ‘securities’ is quite well known in the financial world as tradable financial assets, not everyone can access these assets making them difficult to trade and value. However, through various software solutions, these financial assets can now be turned into tokens on a blockchain. Once they’ve been created, these tokens can enter global markets with a low barrier of entry for investors.

2. Utility Tokens

Tokens need not only be about representing a share in a company, it is possible to extend the functions of tokens. This is what ‘Utility tokens’ are all about, they are programmed with additional rules to improve their functionality, or as rightly named, utility. 

3. Non-fungible tokens

A non-fungible token is a non-interchangeable unit of data stored on a blockchain, a form of digital ledger, that can be sold and traded. Types of NFT data units may be associated with digital files such as photos, videos, and audio. Because each token is uniquely identifiable, NFTs differ from blockchain cryptocurrencies, such as Bitcoin.

4. Currency Tokens

Indeed, innovation has no limits! Today, humanity can build an entire monetary system through tokens by creating a program or as we like to call it, a smart contract. This program is created on a blockchain in which tokens can be traded. This has its limitations by not being the native token of the blockchain on which it operates.

Some companies have used this as a way to create tokens that are artificially stable in value, called stablecoins, so they can more easily be used for payments.

Over the past decade, currency tokens have come and gone. While some people have created them in the endeavour to create a nemesis for Bitcoin, many others have just done so to explore the less travelled paths.

Challenges of Tokenization

What is life without a few challenges? Every little step of progress is often tainted with the challenges of risks. Similarly, while asset tokenization has a lot to offer, it has its own share of challenges. These are: 

1. Data security and privacy:

Privacy issues regarding tokenization may arise due to a blockchain’s distributed structure, involving the sharing and storing of sensitive user data across multiple blockchain nodes. Blockchains are secure, but the security of individual nodes in the network cannot be always guaranteed.

2. Technological reliability:

In the eyes of many investors and asset owners, blockchain is still a relatively new technology. After Bitcoin, several other blockchains have maintained a successful record. However, smart contracts and other blockchain applications have not yet reached a desired level of reliability in some industries.

3. Legal and regulatory uncertainty:

Security regulations do not generally take into account the underlying technology. This means that the technology must adapt to existing regulatory and legal boundaries. In the case of tokenized assets, some of them can fall under the full scope of relevant regulations, and these may vary from jurisdiction to jurisdiction. Regulatory uncertainties slow down the initiation and trading of tokenized assets.

With this, we conclude our take on the ever evolving tokenization of assets. In a nutshell,  tokenization means the digitalization of real-world tradable assets.  This digitalization which seemed like a far fetched future, now stands as a reality. With its many faces now before you, it is up to you to continue observing and maintain your distance or venture into it with full momentum.

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Stablecoins are digital currencies backed by secure assets such as the US Dollars, fiat currencies, other cryptocurrencies, or gold. As a result, their values are stable. These coins’ prices remain consistent due to their stable assets, which make them less sensitive to price changes. A computer program is also used by certain stablecoins to keep their value relatively stable.

What are Stablecoins?

Stablecoins are a type of cryptocurrency designed to provide greater stability than other cryptocurrencies. Some are backed by a reserve of the asset they represent, while others rely on algorithms or other techniques to keep their values stable.

How do stablecoins work?

• Endurance to Volatility: Stablecoins have the advantage of being constructed to endure volatility in a way that other cryptocurrencies are not. They can also provide mobility and accessibility. It is a more stable and decentralized cryptocurrency. This means that it is not a part of a centralized system or organization. As a result, it gains autonomy.

• Ease of Movement of Money: Stablecoins are popular with investors for a variety of additional reasons. It enables for speedier movement of money and offers anonymity of financial data. Stablecoins also help consumers to avoid paying fees for financial services.

• Stable Value: Stablecoins differ from other crypto assets in various ways. In terms of value, they’re made to stay put. This indicates that, while there will be no decrease in value, there will also be no increase. When comparing the USD coin to the Bitcoin coin, this becomes clear. The value of the US dollar coin has hardly changed since its introduction. In 2019, Bitcoin was worth $4,000, and by May 2021, it was worth $60,000.

• Unkown Risks: Stablecoins should be considered as a sort of digital cash. It is, nevertheless, still a cryptocurrency, despite its stability. As a result, it is still a relatively new entity with unknown risks. If you wish to put all of your savings in cryptocurrency, it can be a risky alternative. Approach stablecoins with an open mind and a desire to learn more about them. Stablecoins can also be used as a starting step towards investing in cryptocurrencies.

Types of stablecoins

Stablecoins come in a variety of shapes and sizes, depending on the asset that backs them and gives them some semblance of stability. These are the sorts of stablecoins that are currently accessible, according to Benzinga: Commodity-Backed Stablecoins, Cryptocurrency-Backed stablecoins, Fiat-backed Stablecoins, and Seigniorage-Style Stablecoins are examples:

1. Seigniorage-Style Stablecoins

Stablecoins of the seigniorage form, also known as algorithmic stablecoins or non-collateralized stablecoins, are ones whose prices are kept stable by an algorithm, a process, or even a working mechanis.

2. Commodity-Backed Stablecoins

According to Benzinga, commodity-backed stablecoins are “stabilized by physical assets such as gold or real estate.” Commodity-backed stablecoins are frequently made of gold, but other metals have also been employed. Examples of commodity-backed stablecoins include Tether Gold and Paxos Gold.

3. Cryptocurrency-Backed Stablecoins

In addition, cryptocurrency can be used to back up other cryptocurrencies. The quantity of this type of stablecoin is usually low. Wrapped Bitcoin is an example of a cryptocurrency-backed stablecoin.

4. Fiat-Backed Stablecoins

Stablecoins that are backed by fiat currencies, such as the US dollar, are known as fiat-backed stablecoins. Precious metals like silver and platinum, according to Benzinga, can also be deemed fiat. Examples of fiat-backed stablecoins are the USD Coin and Tether. The prices of both are based on the US Dollar.

How Safe are Stablecoins?

Usually Stablecoins are safer than other variant of cryptocurrencies. Stablecoins are appealing because they are designed to survive volatility in a manner that other cryptocurrencies are not, while still maintaining mobility and accessibility. A more stable cryptocurrency is still decentralized, which means it isn’t bound by centralized laws and regulations. This opens the door to the world of DeFi, with benefits such as speedier money transfers, access to financial services without the need for apps, the privacy of financial data, and the avoidance of financial service costs. Stablecoins with a centralized backing provide a digital choice backed by a traditional currency.

List of top 10 Stablecoins

According to CoinMarketCap, a cryptocurrency statistics and analytics firm, these are the Top 10 Trading Stablecoins by Market Capitalization.

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