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  • Home
  • About
  • Podcast
    • Summaries
    • Articles
  • Invoice Finance
    • Basics
      • What is Invoice Finance?
      • What is Reverse Factoring?
      • What are Trade Receivables?
      • What is the Cash Conversion Cycle?
      • What is Days Inventory Outstanding?
      • What is Days Sales Outstanding?
      • What is Days Payable Outstanding?
    • Advanced
      • Invoice Validation and Fraud Detection
      • Reasons Why Invoice Finance is Better than a Bank Loan
      • How to Choose the Right Factoring Firm for Your Business
      • A Closer Look at Factoring Agreements
      • What is Trade Receivables Securitisation?
      • Breakdown of the Costs for Factoring
    • Factoring
      • Why Companies Use Invoice Factoring
      • What Companies are Suitable for Invoice Factoring?
      • Factoring and Invoice Discounting
      • How Factoring Works
      • Asset Based Lending
      • Is Factoring Right for Your Company?
      • Accounting for Factoring
      • How a Company Enters into a Factoring Agreement
      • The Costs Involved in Factoring
      • Changing Factoring Company
      • The Relationship Between the Factoring Company and the Debtor
      • Legal Aspects of a Factoring Company Pursuing Payment Through the Courts
      • Factoring in the Construction Industry
    • Fraud
      • Types of Invoice Fraud
      • How to Combat Invoice Fraud
    • E-Invoicing
      • Legal Status of Electronic Invoicing
      • The Benefits of E-Invoicing
      • Implementing an E-Invoice System
      • E-Invoicing Adoption in Mexico and The Rest of the World
  • Brokers
    • UK Brokerage Firms
  • Factoring Firms
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      • UK
      • France
      • Germany
      • Italy
      • Spain
      • Holland
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      • Canada
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      • New Zealand
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    • UK Fintech
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      • Enhancing Fintech Interoperability: Digitalizing Trade Documents for Efficiency and Security
      • The 7 Types of AI and Their Implications for the Future
      • Transforming Trade Finance: The Role of AI
      • The Different Programming Languages Used in Fintech Companies and Financial Institutions
      • UK and US Authorities Intervene in AI Sector
      • Web3 Applications and the Future of Trade Finance
      • What is Web 3?
      • What Can Fintech do for You?
      • What is Fintech?
      • Tokenisation of Finance
      • Payment Services in the Invoice Finance Sector
      • What is ChatGPT and Why the Fuss?
  • Rating Agencies
  • Securitisation
    • Deal Arrangers
    • Book Runners
    • Articles
      • The Roles of Deal Arrangers and Book Runners in Securitization
      • What is Trade Receivables Securitisation?
      • The Appeal of Trade Receivables Securitisation
      • Risk Mitigation for Trade Receivables Securitisation
  • Legal
    • Law Firms
    • Articles
      • A Guide to Accounts Receivable Purchase Agreements and Invoice Discounting Agreements
      • The Challenges of KYC and AML Checks
      • What is The Model Law on Electronic Transferable Records (MLETR)?
      • Snapshot of Factoring Legal Schemes in England and Wales
      • How are UK Factoring Firms Regulated?
      • What is ISO20022 and Why is it Important?
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      • Financial Crisis or Not?
      • Credit Suisse Bailout
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      • Credit Insurance in Trade Receivables Financing
      • The Benefits of Credit Insurance in Invoice Finance
      • Eligibility Requirements for Capital Relief by Using Credit Insurance
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      • How the War in Ukraine Affects the Price of Credit Insurance for Trade Finance
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Home Crypto Finance

History of Tokenisation as a Method of Dividing Up Assets for Financing

John Goodden by John Goodden
September 19, 2023
in Crypto Finance, Hi-Tech, Securitisation
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Tokenisation as a method of dividing up assets, such as trade receivables, for financing by multiple sources has evolved significantly over the years. This innovative financial practice has its roots in traditional finance, but it has been greatly enhanced by advancements in blockchain technology and digital assets. Here is a historical overview of the development of tokenization:

Early Financial Instruments (Pre-Blockchain Era):

The concept of dividing up assets for financing is not new and can be traced back to the creation of various financial instruments such as bonds, stocks, and derivatives.

Traditional financial markets relied on centralized intermediaries like banks and stock exchanges to facilitate the trading and financing of these assets.

According to Wikipedia the value of the world’s market capitalisation to percentage of GDP has grown from 27.2% in 1975 to 134.7% in 2020.

Emergence of Securitisation (20th Century):

In the 20th century, securitisation became a popular method for dividing up assets, particularly loans and mortgages. According to the Securities Industry and Financial Markets Association (SIFMA), the U.S. mortgage-backed securities market up to August 2023 had an issuance value of $625.5 billion .

Securitisation involves bundling loans together and then issuing securities backed by those loans. These securities could then be traded in the secondary market.

However, securities are not without risk: securitization of subprime mortgages in the USA played a significant role in the 2007/2008 financial crisis. These mortgage-backed securities, divided into complex tranches, led to massive defaults and losses. This crisis demonstrated how tokenisation, when not properly regulated and supervised, can lead to systemic risks and financial instability.

Digitalization of Financial Assets (Late 20th Century):

The advent of electronic trading platforms and the digitization of financial assets made it easier to trade and finance various assets, including trade receivables.

However, these processes still relied on traditional centralized intermediaries.

Blockchain Technology (2000s):

The development of blockchain technology, notably the emergence of Bitcoin in 2009, introduced the concept of decentralized and trustless ledgers.

Blockchain technology provided the foundation for tokenization by enabling the creation of unique digital tokens to represent ownership or rights to real-world assets.

Initial Coin Offerings (ICOs) and Tokenisation (2010s):

In the early 2010s, ICOs gained popularity as a way to raise funds by issuing tokens on blockchain networks. These tokens represented various assets, from cryptocurrencies to utility tokens.

Tokenisation started expanding beyond cryptocurrencies, and the idea of representing physical assets like real estate and trade receivables in tokenized form gained traction.

ICO Frauds and Scams (2017-2018):

The ICO boom of 2017 also saw numerous fraudulent token offerings. According to a report by Satis Group, 81% of ICOs conducted in 2017 were identified as scams.

ICO scams highlighted the importance of regulatory oversight and due diligence in tokenisation.

Regulatory Challenges (2010s-Present):

As tokenisation became more mainstream, regulatory bodies worldwide began addressing the legal and regulatory frameworks for tokenized assets.

Various countries introduced regulations to govern tokenized securities and assets, aiming to provide investor protection and ensure compliance with existing financial laws. Such regulations include MiCA in the EU and The Financial Services and Market Act 2023 in the UK.

Decentralized Finance (DeFi) (2010s-Present):

The DeFi movement, which gained momentum in the mid-2010s, leverages blockchain technology to create decentralized financial systems.

DeFi platforms enable users to tokenize and trade various assets, including trade receivables, without the need for traditional intermediaries like banks.

Tokenisation Ecosystem (Present):

Today, there is a growing ecosystem of platforms and technologies dedicated to tokenisation, making it easier to divide and finance assets.

Tokenisation is being applied across a wide range of industries, including real estate, supply chain and art, in addition to traditional financial assets.

Future Developments (Future):

The future of tokenisation is likely to see further integration with emerging technologies such as artificial intelligence and the Internet of Things (IoT).

As regulatory clarity improves and the technology matures, tokenisation is expected to play an increasingly significant role in the global financial landscape.

In conclusion

The history of tokenization as a financing method reveals both its promise and perils. While it offers efficiency and accessibility, the 2007/2008 financial crisis and ICO scams serve as stark reminders of the importance of regulation, transparency, and responsible adoption in the world of tokenized assets. As the technology matures and regulatory frameworks solidify, tokenization is poised to play a pivotal role in the future of finance.

Tags: blockchainICOmarket capitalisationscamssecuritisationtokenisation
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  • Home
  • About
  • Podcast
    • Summaries
    • Articles
  • Invoice Finance
    • Basics
      • What is Invoice Finance?
      • What is Reverse Factoring?
      • What are Trade Receivables?
      • What is the Cash Conversion Cycle?
      • What is Days Inventory Outstanding?
      • What is Days Sales Outstanding?
      • What is Days Payable Outstanding?
    • Advanced
      • Invoice Validation and Fraud Detection
      • Reasons Why Invoice Finance is Better than a Bank Loan
      • How to Choose the Right Factoring Firm for Your Business
      • A Closer Look at Factoring Agreements
      • What is Trade Receivables Securitisation?
      • Breakdown of the Costs for Factoring
    • Factoring
      • Why Companies Use Invoice Factoring
      • What Companies are Suitable for Invoice Factoring?
      • Factoring and Invoice Discounting
      • How Factoring Works
      • Asset Based Lending
      • Is Factoring Right for Your Company?
      • Accounting for Factoring
      • How a Company Enters into a Factoring Agreement
      • The Costs Involved in Factoring
      • Changing Factoring Company
      • The Relationship Between the Factoring Company and the Debtor
      • Legal Aspects of a Factoring Company Pursuing Payment Through the Courts
      • Factoring in the Construction Industry
    • Fraud
      • Types of Invoice Fraud
      • How to Combat Invoice Fraud
    • E-Invoicing
      • Legal Status of Electronic Invoicing
      • The Benefits of E-Invoicing
      • Implementing an E-Invoice System
      • E-Invoicing Adoption in Mexico and The Rest of the World
  • Brokers
    • UK Brokerage Firms
  • Factoring Firms
    • Europe
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      • Holland
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      • New Zealand
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    • Articles
      • Enhancing Fintech Interoperability: Digitalizing Trade Documents for Efficiency and Security
      • The 7 Types of AI and Their Implications for the Future
      • Transforming Trade Finance: The Role of AI
      • The Different Programming Languages Used in Fintech Companies and Financial Institutions
      • UK and US Authorities Intervene in AI Sector
      • Web3 Applications and the Future of Trade Finance
      • What is Web 3?
      • What Can Fintech do for You?
      • What is Fintech?
      • Tokenisation of Finance
      • Payment Services in the Invoice Finance Sector
      • What is ChatGPT and Why the Fuss?
  • Rating Agencies
  • Securitisation
    • Deal Arrangers
    • Book Runners
    • Articles
      • The Roles of Deal Arrangers and Book Runners in Securitization
      • What is Trade Receivables Securitisation?
      • The Appeal of Trade Receivables Securitisation
      • Risk Mitigation for Trade Receivables Securitisation
  • Legal
    • Law Firms
    • Articles
      • A Guide to Accounts Receivable Purchase Agreements and Invoice Discounting Agreements
      • The Challenges of KYC and AML Checks
      • What is The Model Law on Electronic Transferable Records (MLETR)?
      • Snapshot of Factoring Legal Schemes in England and Wales
      • How are UK Factoring Firms Regulated?
      • What is ISO20022 and Why is it Important?
  • Rates
  • Economy
    • Economic Indicators
    • Articles
      • The Collapse of the Russian Rouble: An Historical Analysis and Current Implications
      • The Current State of the UK Economy
      • Economic Forecast for the UK in 2023
      • Economic News for 2022
      • Financial Crisis or Not?
      • Credit Suisse Bailout
  • Credit Insurers
    • Credit Insurers
    • Articles
      • Credit Insurance Legal Aspects
      • Credit Insurance in Trade Receivables Financing
      • The Benefits of Credit Insurance in Invoice Finance
      • Eligibility Requirements for Capital Relief by Using Credit Insurance
      • What are Export Credits and Country Risk Classifications?
      • How the War in Ukraine Affects the Price of Credit Insurance for Trade Finance
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    • Markets in Crypto Act (MiCA) Becomes EU Law
    • An Introduction to EU’s Markets in Crypto-Assets (MiCA) Law 
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    • How DeFi Fulfils the Functions of Finance
    • Taxonomy of Crypto Assets
    • Crypto Currencies
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