Introduction to Tokenization

A token represents the ownership of something. A majority of blockchain use cases start with a token. Fungible tokens are all identical and cannot be distinguished from each other; currencies are an example of fungible tokens. Non-fungible tokens (NFTs) are all unique. They’re adapted to represent legal documents, luxury goods, pieces of art, and so on, whereas hybrid tokens are a mix of both as they introduce token classes. A class can be tranches of a pool of securities, a container on a ship, and so on. Adopting a modular strategy provides the necessary adaptability to meet the needs of both conventional stakeholders and crypto-oriented audiences, thereby facilitating the merging of decentralized finance (DeFi) and centralized finance (CeFi) into a tangible reality.

In this chapter, we will discuss the possibilities of creating a real-world asset with tokens, creating new business models with tokens, and looking at examples of digital assets...

What is tokenomics?

Token economics, also known as tokenomics, is a concept in the field of cryptocurrencies and blockchain technology that refers to the study and design of economic systems that govern the creation, distribution, and management of digital tokens within a decentralized ecosystem. Token economics aims to create a well-balanced, sustainable, and incentivized structure for participants in a blockchain network or a decentralized application (dApp).

Some of the key aspects of token economics are as follows:

• Token supply: The total number of tokens that can ever exist and the schedule for their creation, such as fixed supply, inflationary, or deflationary models
• Token distribution: The process and methods by which tokens are allocated to different stakeholders in the ecosystem, such as initial coin offerings (ICOs), token sales, airdrops, mining, or staking rewards
• Token utility: The various use cases and functionalities of the token within the ecosystem...

Common token standards in Ethereum

Ethereum, as a platform, supports the creation and use of several types of tokens. Tokens built on Ethereum usually follow specific standards that define a set of rules and functions that make them compatible with existing wallets, exchanges, and dApps. Let’s look at some of the most common Ethereum token standards.

ERC-20

The Ethereum Request for Comments 20 (ERC-20) standard is a widely adopted token standard on the Ethereum network. ERC-20 tokens are fungible, meaning that each token is interchangeable with another of the same type. They follow a predefined set of rules and functions, ensuring compatibility with a wide range of wallets, exchanges, and dApps.

Here are some examples of ERC-20 tokens:

• Chainlink (LINK): A decentralized oracle network token used to connect smart contracts with off-chain data
• BAT: A digital advertising token used to reward users for their attention within the Brave browser ecosystem
• USD...

Tokenization

You have probably heard of the term digital assets. In Ethereum, tokenization is a simple way to create digital assets. Your tokens are a kind of digital asset. In simple terms, making traditional assets such as money, real estate, and creative work into digital tokens on the web is how you turn them into digital assets in the Web3 world. It involves creating a business model around these tokens to use them in the digital economy. Theoretically, you can tokenize anything that has a physical or virtual form in this world.

Tokenization refers to the process of digitally representing ownership of physical or non-physical assets on a blockchain network. Ethereum, with its versatile and robust platform for creating smart contracts, has emerged as a popular choice for asset tokenization.

Tokenization is the process of converting rights to an asset into a digital token on a blockchain. For example, valuable commodities such as real estate, artwork, precious metals, or company...

Summary

In this chapter, we explored the concept of tokenization, where rights to a real-world or digital asset are converted into digital tokens on a blockchain. Tokenization democratizes access to investments, improves liquidity, and ensures transaction transparency.

We saw various examples of tokenization, such as fractionalizing high-value artwork or property and tokenizing digital art into NFTs. We also discussed how tokenization enables small investors to participate in markets that are typically reserved for wealthier individuals or larger organizations. We also explored how businesses can tokenize their assets, whether they’re physical, digital, or financial, to create new opportunities and business models.

In the case of financial instruments such as bonds, we saw how they can be tokenized, making them more accessible and liquid, with transactions recorded transparently on a blockchain. However, we also highlighted that the tokenization process must comply with...