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Tokenization is one of the blockchain proponents that will likely stand the test of time. act of tokenizing something means giving it a representation on a blockchain. Everything can be tokenized, from wine to cars to mortgages and ownership of works of art. Owning a token backed by a physical asset gives the holder beneficial ownership of that product. Let’s take wine as a use case. When you tokenize a bottle of fine wine, you have the token that proves your ownership, as the blockchain creates a permanent and immutable record of your token. You may be collecting wine as an investor or you just want to drink it. If you are an investor, you can collect the wine and store it, or you don’t have to worry about logistics, as long as the wine is safely stored in the vineyard or cellar.

same applies to art. With art, you can have a token that represents a real work of art, or you can have an NFT that is a minted work of art. Either way, the product is yours and there is no way around the blockchain. One of the main advantages of the blockchain is that it is almost impossible to manipulate the code. This is because, with a distributed ledger, information is maintained in many hundreds of nodes (computers) located around the world. It would take an enormous amount of time and energy for someone to crack the code, and frankly not worth it. Instead, miners are rewarded and incentivized for mining tokens, rather than hacking them.

What are security tokens?

A stock in traditional financial markets is any tradable financial asset, such as stocks, property, commodities, ETFs, or options. Provides the owner with ownership representation in a PLC or ownership rights to an option. When an investor purchases a stock, they are given a digital representation of ownership of that asset, via a security token, which is stored on the blockchain.

You can create security tokens by taking a real asset and then converting it to a token or mining or parking on a blockchain.

Coins versus tokens

A currency like Bitcoin is a monetary medium. se are fungible, which means you can exchange one currency for another in the same currency and it would be worth the same. Its only value is to make payments or be used as a speculative instrument for commercial purposes, for example. Will the value of BTC go up or down? So, a currency represents a monetary unit or a store of value.

What is a utility token?

A token is a digital representation of an asset. Many crypto protocols or projects issue tokens to raise funds for your project. y do this by selling tokens through an ICO or by offering their stake in tokens in exchange for a passive return. Tokens are not considered a currency, but a representation of the value of what is behind them.

limits of security tokens

limits of security tokens reside in the SEC and the regulations that impose them. Security tokens are highly regulated, while utility tokens are free from interference from the Fed, making them much more attractive to holders, users, issuers, and investors. However, the unregulated nature of utility tokens makes it a wild west to trade, giving scammers the opportunity to exploit users.

SEC defines an action if it meets these three criteria, this is known as the Howey test:

• It is an investment of money;
• investment is in a joint venture;
• re is an expectation of profit from the work of the promoters or the third party.

Any token that does not meet these three criteria is known as a utility token. While the security tokens were made for investment purposes, the utility tokens help fund ICOs and create an internal source of economy for the project.

Convergence is a project that is bridging the gap between traditional capital markets and the blockchain by tokenizing assets, turning them into security tokens, and giving them the security and stability that come with regulated assets. This decentralized tradable asset protocol brings real-world assets into the realm of DeFi by converting them into tokens and dividing them. Tokenized assets are placed in ConvX’s liquidity pool and can be traded by any user. A product like this that fuses capital markets with blockchain can maintain the inherent security and oversight of regulated markets.

bottom line:

Tokenization is capable of promoting a new era of financial market interaction for users that is secure and almost instantaneous when making a transaction. With tokenization comes the ability to split resources, lowering the barrier to entry for both users and generating more funds for projects, saving time and money for companies looking to reconcile transactions.

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