The word “democratization” typically evokes ideals of freedom and the process of governments moving from authoritarianism to democracy. Today, however, democratization in finance is also used to describe the reduction of barriers to entry into certain markets or activities.
Financial democratization promises to give more people access to markets, but it may come at the expense of individual freedoms, privacy, and property rights.
Democratizing markets may sound like a good idea, but in the real world it’s a path to owning nothing substantial.
The quest for “democratization” World Economic Forum website It becomes clear that everything is being democratized, from tangible goods to intangible concepts. DematerializationThis process includes physical goods, precious metals, capital markets, cryptocurrencies, deepfake applications, media content, travel, computing, digital connectivity, access to technology, skills, growth and even the sky.
Let’s take a look at the “tokenization” of assets.
Democratization of assets occurs through the process of tokenization. Essentially, tokenization dematerializes physical assets into digital assets (tokens) that can be exchanged on the blockchain. Tokenized physical assets, such as real estate or art, can be traded for: Real World AssetsTokenized securities are Digital Asset Securities.
When a real-world asset, like a painting, is tokenized, it exists in two forms: its original physical form and a newly created digital “twin” called a token that exists on the blockchain. Each token is “Smart ContractsA smart contract contains code called a “smart contract” that details an asset’s fair value, ownership, and other attributes. The smart contract contains code that instructs the blockchain to perform certain functions, such as buying or selling under certain conditions. As a result, a painting could be instantly bought or traded multiple times on the blockchain without ever leaving its physical location.
The purpose of tokenization Easy access to markets Turning physical assets into a liquid form like cash allows more people to participate in the capital markets. Once assets are liquidated, they can be used to buy and sell fractions of real-world assets or shares in digital securities. Fractional ownership means buying a portion of an entire asset or share.
To be clear, fractional ownership of a real world asset is not the same as true ownership – for example, you cannot physically hang part of a painting in your home. When you purchase fractional ownership of a painting, you are essentially purchasing a “right” to the future value of the painting, not the physical asset itself.
Democratizing markets may sound like a good idea, but in the real world it’s a path to owning nothing substantial.
DTCC Digital AssetsThe American Depository Trust and Clearing Corporation, one of the world’s most powerful financial institutions and a leading proponent of tokenization, said digital securities have similar functions and right Just like traditional securities. While this may sound reassuring to some, the reality is that our ownership interests in investment securities are already Completely capsized By secretly making changes to the Uniform Commercial Code, the state law that regulates U.S. commerce.
Bank lobbyists and their allies are the main Amendment to Article 8 of the UCC Thirty years ago, all 50 states created securities commissions to govern investment securities. This change eliminated investors’ basic ownership rights in securities and replaced them with “securities titles,” which are merely the contracts for the securities that most investors think of as their property. Today, legal title to traditional securities is typically held by the Depository Trust Company, a subsidiary of DTCC, which holds approximately $10 million in securities. $87 trillion The value of pooled securities held in trust for brokerages and other financial institutions.
Under this new arrangement, “rights holders” are treated as unsecured creditors rather than asset owners. “Secured creditors” are financial institutions that cannot fail to which the stockbroker has pledged the investor’s assets as collateral for loans and derivatives. In other words, if the stockbroker or DTC/DTCC goes bankrupt, its creditors (mainly the world’s largest banks) will have priority over the securities that the investor believes he or she owns.
When it comes to tokenizing assets, the goal of DTCC and other financial giants is to undermine our ownership rights over tangible assets, just as they did with investment securities. Purchasers of tokenized real-world assets own “rights” to the assets, just as securities purchasers own “rights” to securities. These “rights” and “entitlements” are intangible to individuals, but offer tangible wealth-building opportunities for secured creditors.
The dematerialization and tokenization of real-world assets makes it easier for powerful financial institutions to take ownership of those assets, because the newly tokenized assets reside on a blockchain that is centrally controlled by the same institutions, such as the very powerful DTCC.
Imagine an individual wants to buy shares on the stock market but has no cash. When you tokenize that individual’s real-world assets, such as their house, car, and partial “ownership” in a painting, these assets are stored in digital form on the blockchain. If the individual’s house and car are collateral for a tokenized mortgage or auto loan, banks can continue to leverage that asset in the derivatives markets, just as they did in the pre-tokenization world. This allows the individual to enter the stock market by collateralizing the tokenized painting in a margin account.
Individual shares will become digital asset securities traded on a blockchain, which will likely be centralized by a powerful financial institution such as DTCC Digital Assets. Dedicate yourself “Establish an industry-wide digital asset ecosystem to accelerate the acceptance of tokenized assets.”
This personal RWA token acts as collateral for the margin account, allowing brokers to use these tokenized real-world assets for their own trading purposes, presumably in the DTCC Digital Assets on-blockchain derivatives market.
In this scenario, the individual’s real-world assets and digital assets would be under the control and ownership of DTCC within the derivatives complex. In the event of bankruptcy of the individual’s broker or DTCC digital assets during an economic crisis, creditors would obtain ownership of the individual’s shares and tokenized real-world assets, similar to how creditors currently do for securities under Article 8 of the UCC.
This “democratization” of financial markets claims to benefit participants, but at the same time it strips away individual property rights — the ultimate bait-and-switch ploy. It doesn’t seem like a deal worth making.
