How to Optimize Your Business with Non-Traditional Asset-Backed Financing
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Non-traditional financial systems powered by blockchain technology have emerged to fix long-standing inefficiencies of the financial industry. Drawbacks of the traditional non-blockchain financial industry include data breaches, high transaction costs, opaque economic structure, limited success rates, and investor access.
Finance protocols designed on blockchain have managed to overcome such issues and made a huge difference in key areas such as loans, payments, and trading. Now it’s time to apply the same blockchain technology to an even bigger market of Real-World Asset (RWA).
Every enterprise has assets that don’t trade in an open market. Every enterprise has assets that are necessary to the organization yet their value cannot be easily separated and they aren’t traded in an open market. Left with no options, enterprises seek financial assistance through debt or equity capital, which can increase liabilities and reduce ownership stake. The perfect alternative to this is asset-backed financing. Which assets? The ones already owned by the enterprise.
Blockchain Finance To Become the New Norm
Blockchain-driven financial systems will inevitably become the new norm in the financial industry. For starters, they significantly reduce costs for institutions. Overhead costs on centralized databases, bookkeeping, and administrative labor can be eliminated completely. Further, blockchain controls financial risks by promoting better auditing and overall transparency in the system.
These benefits can instantly be leveraged to disrupt the asset-backed financing using RWA. For decades, traditional financial institutions have had full autonomy on how RWA are valued. They also often follow proprietary standards to evaluate a group of similar assets on flawed projections and do not consider ever-changing economic conditions.
The right way to arrive at a fair valuation is to bring transparency between asset owners and investors, making the assets liquid and allowing a broad range of investors to explore a new asset class. To introduce fresh liquidity, RWA can be transformed into asset-backed tokens, a type of non-fungible tokens (NFT) that represent asset ownership on the blockchain. This is not a security, but rather a digital representation of the RWA on technology for transactions. Enterprises can also associate further utility with these tokens in the form of licensing or royalties.
Choosing the Right Blockchain Platform Matters
The base-level benefits of using blockchain technology can translate from one finance protocol to another. However, when it comes to asset-backed financing, there are more variables to consider, such as marketplace offering, cross-chain functionality, liquidity, and proper asset valuation. A platform having all such utilities in place is OvenueTM.
Ovenue is an artificial intelligence- and blockchain-enabled platform that helps financial institutions and B2B enterprises transform illiquid, off-chain assets into liquid, on-chain asset-backed tokens.
With over USD 400 million of Tokenized Assets Valued (TAV), Ovenue has tokenized a wide range of asset classes, including but not limited to franchise agreements, commodities, real estate, and intellectual property.
Enterprises can create private markets and tap into liquidity following a step-by-step process on Ovenue. Here’s a quick breakdown of how it works:
- Enterprise assets are evaluated using Ovenue’s AI-enabled industry-standard asset valuation calculator, and an initial estimate is drawn.
- The next step is to tokenize RWAs and create a non-fungible token (NFT) that is a digital representation of the asset.
- These asset-backed tokens are listed on the asset owner’s Web 3.0 business storefront and Ovenue’s marketplace for transacting the asset, either through a sale transaction or asset-backed financing.
- The asset-backed tokens can also be connected to other platforms and services to enable financing.
Saving Millions & Promoting Financial Inclusion At The Same Time
Blockchain-based asset-backed financing eliminates two long-standing problems at once. Turning assets into tokens opens up growth opportunities for businesses by adding more financing options.
At the same time, it creates a market with never-seen-before asset classes for investors.
By injecting liquidity and raising investor awareness, blockchain technology can also save millions of dollars for the finance industry. As these assets are estimated to be worth trillions, incremental improvements can make a big difference. Platforms like Ovenue are pioneers in this new open finance movement with a vision to bring RWA to life.