Securitization and tokenization

[botcompare]

Hi guys,

What're your thoughts on these two processes? They are sometimes confused, I saw like several articles on that, like this one

https://medium.com/@nickavramov/on-securitization-and-tokenization-two-sides-of-the-same-coin-a92cc12b4344

Couldn't find any relevant discussion here

[1714990184]

1714990184

[elda34b]

I don't know who coined those terms first, but I believe that a securitization is just a form of tokenization. Essentially you tokenize your share/security so that you can trade/store it on the blockchain instead of doing it the old way. Tokenization is a broad term, which essentially means making something/representing something to a token. You can tokenize nearly everything, from land ownership, services, money and so on. Securitization is always tokenization, while tokenization doesn't necessarily mean you're going to make something as digital security reflected on a token.
I'm not reading the article that you put there, sorry.

[X-ray]

Hi guys,

What're your thoughts on these two processes? They are sometimes confused, I saw like several articles on that, like this one

https://medium.com/@nickavramov/on-securitization-and-tokenization-two-sides-of-the-same-coin-a92cc12b4344

Couldn't find any relevant discussion here

As far as i know based on my knowledge if tokenization means if the convertion from the stock or shares into the token that can represent the ownership of that asset or stock and that just like a convert the conventional shares to the token that can be transfered through the blockchain.
Securitization means a way for a platform or company to get the fresh funds through sell or offer its company shares to the public just like what has already done by whole of icos. They get the fund and they offered the security as an exchange,

[CryptoBry]

I read the article and I must admit that things can get confusing at times as I am not an economist nor a financial analyst and then not have given enough time to examine this topic. In the light of the blockchain and cryptocurrency movement, we are more familiar with tokenization and it is broadly defined as "the process of converting assets into digital tokens on a blockchain" and that we can now easily understand as we are exposed to so many tokens in our midst. Securitization is quite a different beast though this can still be related somehow to tokenization. "Securitization is about repackaging mortgages and other assets and making very liquid and attractive financial instruments." In applications, banks can do business combining home loans and then selling them to investors as securities.

[exstasie]

I don't know who coined those terms first, but I believe that a securitization is just a form of tokenization.

Securitization usually refers to the packaging of assets, mainly those with receivables, into a tradeable security. Often times, this means pooling together debts like commercial mortgages and selling the related cash flows to third party investors as securities.

Tokenization, in the context of cryptocurrency and blockchains, entails packaging assets (including securities like those discussed above) into tokens that can be sent and traded on blockchains.

The two ideas are compatible but not quite the same.

[mu_enrico]

AFAIK
Securitization is a term for securities creation based on assets*.
Tokenization is a term for tokens creation (using blockchain technology) based on securities**.

*contractual debt such as residential mortgages, commercial mortgages, auto loans or credit card debt obligations (or other non-debt assets which generate receivables)

Source: https://en.wikipedia.org/wiki/Securitization

** some argue that it doesn't have to be a security, could be a utility/commodity.

[Ailmand]

I don't know who coined those terms first, but I believe that a securitization is just a form of tokenization.

Securitization usually refers to the packaging of assets, mainly those with receivables, into a tradeable security. Often times, this means pooling together debts like commercial mortgages and selling the related cash flows to third party investors as securities.

Tokenization, in the context of cryptocurrency and blockchains, entails packaging assets (including securities like those discussed above) into tokens that can be sent and traded on blockchains.

The two ideas are compatible but not quite the same.

This best explains the whole concept. Securitization and tokenization can be confusing because they are almost alike since they are both done to pool together fractional ownership of an asset, but they are never the same since tokenization is in digital form.

[Virtual miner]

Hi guys,

What're your thoughts on these two processes? They are sometimes confused, I saw like several articles on that, like this one

https://medium.com/@nickavramov/on-securitization-and-tokenization-two-sides-of-the-same-coin-a92cc12b4344

Couldn't find any relevant discussion here

No you can't relate tokenization with securitization. Tokenization is much of like raising equity funds and providing token holders with token and providing them with a right to share of asset in that token. Securitization is when you pool liabilities & debt and transfer it to a whole new entity generally called the SPV or special purpose Vehicle and these SPV later issue contracts based on these debts.

So difference between both is that tokenization aims at distributing a right in the total assets while securitization is absolutely opposite and aims at pooling liabilities. You may say that they are opposite side of same coin due to a simple fact that they divide large pool of assets/debt in small contracts other than that I don't think there are any similarities.

[elda34b]

This best explains the whole concept. Securitization and tokenization can be confusing because they are almost alike since they are both done to pool together fractional ownership of an asset, but they are never the same since tokenization is in digital form.

extasie explanation is good, however, in the context of cryptocurrency, I think securitization would be in digital forms too. So, what do you mean by "tokenization is in digital form"? Are you saying that securitization, and in this context I mean a token that represents a share in a company/business, is not digital?

[hatshepsut93]

I think whatever you called, it's overhyped, because it doesn't solve the problems it claims to solve, and instead it creates a ton of new problems. And end customers absolutely don't care about it, they don't know about blockchain technology and don't want to know, and they are right, because it's mostly a waste of time. Tokenization has no future, because people wouldn't want to manage dozens and hundreds of tokens from platforms that they use.

[exstasie]

I think whatever you called, it's overhyped, because it doesn't solve the problems it claims to solve, and instead it creates a ton of new problems. And end customers absolutely don't care about it, they don't know about blockchain technology and don't want to know, and they are right, because it's mostly a waste of time. Tokenization has no future, because people wouldn't want to manage dozens and hundreds of tokens from platforms that they use.

I think we need to evolve the way we think about tokenization. Right now, mostly all we see are startup companies issuing company stocks as tokens, but this is only a very limited application of tokenization. With smart contracts and a whole world of tokenized assets (not just stocks), we could see much more interesting things.

Consider the lending space. Right now, decentralized/automated lending requires crypto collateral. You basically need to put crypto down as collateral to borrow more crypto. It makes no sense. In the real world, we can use our house or car (or other collateral) to secure loans. With accepted standards about the tokenization of real world assets (like a house deed or car title), we could see real world collateral tokenized and used in crypto lending. And due to the network-based nature of crypto, that could expand lending beyond local or national banks into a much more accessible, global industry. The net effect of that should be to drive interest rates down competitively. We're probably many years away from this sort of application but I don't think it's impossible.

[hatshepsut93]

I think we need to evolve the way we think about tokenization. Right now, mostly all we see are startup companies issuing company stocks as tokens, but this is only a very limited application of tokenization. With smart contracts and a whole world of tokenized assets (not just stocks), we could see much more interesting things.

Consider the lending space. Right now, decentralized/automated lending requires crypto collateral. You basically need to put crypto down as collateral to borrow more crypto. It makes no sense. In the real world, we can use our house or car (or other collateral) to secure loans. With accepted standards about the tokenization of real world assets (like a house deed or car title), we could see real world collateral tokenized and used in crypto lending. And due to the network-based nature of crypto, that could expand lending beyond local or national banks into a much more accessible, global industry. The net effect of that should be to drive interest rates down competitively. We're probably many years away from this sort of application but I don't think it's impossible.

This tokenization of physical items only works if it's enforceable, and for that to happen you need to change the laws and overall rely on the government, which defeats the purpose of crypto. In Bitcoin you can send coins to anyone in the Universe, but with these tokens you'll have to do KYC to verify that the person is a resident of a country that regulates tokens. Even if you rely on private companies instead of governments to enforce tokenization, you'll still have a central point of failure in your protocol.

[exstasie]

Consider the lending space. Right now, decentralized/automated lending requires crypto collateral. You basically need to put crypto down as collateral to borrow more crypto. It makes no sense. In the real world, we can use our house or car (or other collateral) to secure loans. With accepted standards about the tokenization of real world assets (like a house deed or car title), we could see real world collateral tokenized and used in crypto lending. And due to the network-based nature of crypto, that could expand lending beyond local or national banks into a much more accessible, global industry. The net effect of that should be to drive interest rates down competitively. We're probably many years away from this sort of application but I don't think it's impossible.

This tokenization of physical items only works if it's enforceable, and for that to happen you need to change the laws and overall rely on the government, which defeats the purpose of crypto.

No it doesn't. Is there some "10 commandments of crypto" I'm not aware of or something?

We're talking about use cases that are leaps and bounds beyond simple censorship-resistant payments. Cryptocurrencies were never intended to solve the things like physical title disputes. They aren't a replacement for governments and court systems!

That doesn't mean we can't tokenize titles the same way they are already securitized by banks today. Tokenization can simply make investing and loaning much more accessible to both lenders/issuers and borrowers/investors, way beyond the scope of banks.......the same way that ICO tokens made it so anyone in the world with access to crypto could invest in a startup.

In Bitcoin you can send coins to anyone in the Universe, but with these tokens you'll have to do KYC to verify that the person is a resident of a country that regulates tokens. Even if you rely on private companies instead of governments to enforce tokenization, you'll still have a central point of failure in your protocol.

Tokenization =/= decentralization. The point is not to create some protocol to decentralize property titles themselves. That can't be done.

What we can do is use protocols to automatically enforce liquidation/transfer of tokenized collateral upon default. This is much more attractive to lenders since they will incur less expenses recovering collateral.

Same as now with paper contracts, if there are disputes over the legal enforceability of a smart contract, that's a matter for the courts to settle. Disputes will still inevitably arise, just like they do today.

[cryptjh]

I don't know who coined those terms first, but I believe that a securitization is just a form of tokenization.

Securitization usually refers to the packaging of assets, mainly those with receivables, into a tradeable security. Often times, this means pooling together debts like commercial mortgages and selling the related cash flows to third party investors as securities.

Tokenization, in the context of cryptocurrency and blockchains, entails packaging assets (including securities like those discussed above) into tokens that can be sent and traded on blockchains.

The two ideas are compatible but not quite the same.

You gave a much better explanation than the article gave.
But the perspective of future possibilities of securities on the blockchain that the article recap was also very interesting to read about.

[jjjfff]

I don't know who coined those terms first, but I believe that a securitization is just a form of tokenization. Essentially you tokenize your share/security so that you can trade/store it on the blockchain instead of doing it the old way.

They're different things.

Securitization is the bureaucratic process of legally making it so something represents a security.

Tokenization is what you referred to, getting some "real world thing" to be traded using crypto methods.

[beerlover]

They are not the same thing for sure, tokenization is just meaning that something that is not coin but is a token that represents some currency, for example tether is token of usd in crypto world, it is not dollar, it is not coin it is token of dollars representation.

Securitization is however when a coin (or a token) is legally out there, its not illegal to run non-security stuff but securitization makes sure its legal, its like all thumbs are fingers but not all fingers are thumbs, so it is basically registering a company and working under it under certain laws. Now that we talked about both you can see how both of them can be quite different and have very few comparisons, they are both good if done properly but they are totally irrelevant to each other.