Tokenization and the evolution of trading
The first paradigm shift in modern trading came with the internet. For the first time, traders everywhere could buy and sell on electronic venues outside of working hours, easily access real-time financial news, and tap markets around the world to buy foreign securities.
With the tokenization of assets on the blockchain, the financial world is now becoming even more accessible. More types of assets are being made available as tokenized financial instruments, and they can be traded round the clock—24 hours a day, seven days a week, 365 days a year.
The evolution of financial markets
Tokenization refers to the process of issuing blockchain-based tokens representing real-world assets.
Swapping blockchain tokens can streamline the trading process and increase flexibility—shortening settlement cycles to T+0, boosting liquidity, lowering transaction costs, and reducing counterpart risk.
Beyond smoother market operations however, the bigger evolutionary step blockchain tokens enable is the creation of new markets. As studies from high-profile firms including KPMG and Deloitte have found, tokenization is set to “unlock trillions in currently illiquid assets”, and create new global markets that are more accessible than ever before.
Several financial giants, including index fund pioneer Vanguard, are already pushing forward into this new financial frontier. Digital asset trading desks are cropping up around the world, and stock exchanges from Amsterdam to Zurich are designing a new generation of marketplaces where any object of value can potentially be traded—from traditional securities to artwork, real estate shares, and even intellectual property.
Artwork is one of the most illiquid asset classes, and out of reach for many due to prohibitively high prices. Tokenization can split cumbersome and expensive artworks into tamper-proof tokens representing fractional ownership. These tokens can then easily be distributed to traders and investors at low cost. In one of the first examples of this, Andy Warhol’s multi-million dollar painting 14 Small Electric Chairs was successfully tokenized on the Ethereum network in 2018, and the tokens auctioned by art investment platform Maecenas.
Real estate also suffers from lack of liquidity. Tokenization is tipped to disrupt this market with innovative investment structures that would make properties more tradable by dividing them into sections—like specific rooms or apartments that can be assigned to tokens and allotted to individual investors.Tokyo-based investment bank MBK is one of many institutions experimenting with tokenizing property, and has signed a deal with Tallinn firm BitOfProperty to tokenize the sale of properties in Estonia.
Rare metals are often difficult to trade, with buyers and sellers both having very specific requirements. Russian smelting giant Nornickel is working with IBM’s Hyperledger to create blockchain-based representations of rare metals like palladium, cobalt and copper. These minerals will be traded on a digital exchange where all available liquidity can be pooled.
Currency trading is where the tokenization trend has gained the most momentum, with stablecoin activity surging 800% over the past year according to market data firm TokenAnalyst.
Though stablecoins are currently most commonly traded against cryptocurrencies, the tokenization of fiat is poised to disrupt the broader forex market.
With the exception of certain areas of the Middle East, most of the global forex market only trades during the week: From the Australian session starting on Sydney’s Monday morning, to the Asian session, the European session, and the New York session which finishes the forex week on Friday afternoon at 5pm.
Blockchain tokens meanwhile are unencumbered by geographic borders, time zones, or the nine-to-five working week. The cryptocurrency market trades around the clock, and despite being a drop in the ocean compared to the $5 trillion global forex market, it has the potential to ripple out and disrupt the traditional 24/5 forex trading schedule with a truly continuous global market.
Tokenized asset trading on eToroX
Ever since CEO Yoni Assia co-authored the Colored Coins whitepaper with Vitalik Buterin in 2013, eToro has been actively involved in tokenization. To this end, eToro purchased Danish token startup Firmo in 2019 with a view to helping migrate all assets to the blockchain.
“We believe that in the future all assets will be tokenized, and that crypto is just the first step on this journey” — eToroX CEO Yoni Assia
Traders on eToroX can choose from a suite of stablecoins pegged to popular fiat currencies, including the U.S. dollar (USDEX), euro (EURX), British pound (GBPX), and Japanese yen (JPYX), along with smaller currencies like the Turkish Lira (TRYX), Polish Zloty (PLNX), Hong Kong Dollar (HKDX), Singapore Dollar (SGDX), and the South African Rand (ZARX).
These currencies, along with commodities including Gold (GOLDX) and Silver (SLVX), can be traded against an expanding set of cryptocurrencies and tokenized assets, unlocking several benefits for professional traders.
- Trade a range of previously unavailable assets against each other on an institutional-grade exchange.
- Instantly execute orders from anywhere in the world at any time in response to news events or 3 am insights.
- Keep positions open at the weekend open to hedge against market movement between Friday’s close and Sunday’s open.
- Choose to take personal control of your tokenized assets by taking possession of the private keys.
With the tokenized asset market at their fingertips 24 hours a day, traders on eToroX are perfectly placed to get a head start in this rapidly growing ecosystem.