All About Digital Assets
The phrases ‘cryptocurrency’ and ‘non-fungible token (NFTs)’ have grown in popularity over the last several years as they have become more widely adopted and used for a variety of purposes. While cryptocurrencies and NFTs may represent different types of investable assets, both areas can be considered ‘digital assets’. As more people become aware of digital assets and begin investing in them, it is important to understand what these assets are, why they are important, and how blockchain technology is helping to grow this area.
What are Digital Assets?
In its most basic definition, digital assets can be defined as anything that exists in a digital format. The phrase ‘digital assets’ has historically referred to media formats that were traditionally physical items, such as photos, videos, and documents, that began to being created, stored, and shared in a digital environment.
However, since the emergence of blockchain technology, the term ‘digital assets’ has expanded to include investable asset types such as cryptocurrencies, NFTs, asset-backed tokens, and tokenized real estate. As these new blockchain-backed digital assets have become more widely adopted, the definition of the phrase has shifted to being primarily focused on assets that are backed by a distributed ledger, rather than digital media files. Many physical assets, such as real estate and commodities, can be tokenized and create a digital asset for trading, opening up new possibilities for digital assets marketplaces.
The emergence of investable digital assets within the financial services industry represents a new opportunity for investment in a fast-growing area backed by a technology that can be scaled to digitally transform businesses and assets.
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In its most basic definition, digital assets can be defined as anything that exists in a digital format. The phrase ‘digital assets’ has historically referred to media formats that were traditionally physical items, such as photos, videos, and documents, that began to being created, stored, and shared in a digital environment.
However, since the emergence of blockchain technology, the term ‘digital assets’ has expanded to include investable asset types such as cryptocurrencies, NFTs, asset-backed tokens, and tokenized real estate. As these new blockchain-backed digital assets have become more widely adopted, the definition of the phrase has shifted to being primarily focused on assets that are backed by a distributed ledger, rather than digital media files. Many physical assets, such as real estate and commodities, can be tokenized and create a digital asset for trading, opening up new possibilities for digital assets marketplaces.
The emergence of investable digital assets within the financial services industry represents a new opportunity for investment in a fast-growing area backed by a technology that can be scaled to digitally transform businesses and assets.
Why are Digital Assets Important?
While there are a wide variety of reasons that digital assets are important, some of the most notable factors of digital assets include:
Decentralized Finance (DeFi)
A core component to digital assets is the usage of decentralized, digital ledgers to record asset ownership and exchanges. This contrasts against traditional assets that are recorded in a private ledger maintained by a central party. This change is representative of “decentralized finance” or DeFi, which describes a system that allows consumers to trade digital assets without the need of a traditional financial institute.
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A core component to digital assets is the usage of decentralized, digital ledgers to record asset ownership and exchanges. This contrasts against traditional assets that are recorded in a private ledger maintained by a central party. This change is representative of “decentralized finance” or DeFi, which describes a system that allows consumers to trade digital assets without the need of a traditional financial institute.
Transaction Transparency
With blockchain technology and decentralized finance, transactions that are recorded on the digital ledger can be viewed by anyone. While there is still a level of privacy with the blockchain and digital asset transactions, the transparency of this structure can allow for more visibility and clarification of the parties engaging in a transaction.
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With blockchain technology and decentralized finance, transactions that are recorded on the digital ledger can be viewed by anyone. While there is still a level of privacy with the blockchain and digital asset transactions, the transparency of this structure can allow for more visibility and clarification of the parties engaging in a transaction.
Digital Asset Trading Examples
There are a wide variety of digital assets available nowadays, including:
Cryptocurrencies
Perhaps the most well-known form of digital assets, cryptocurrencies, such as Bitcoin and Ethereum, are digital currency that are secured by cryptography via the blockchain. Cryptocurrency users can utilize these digital assets for numerous reasons, such as using them as a form of payment or investing in them.
NFTs
NFTs stand for ‘non-fungible token’, which essentially means that the asset’s token is unique and allows for authentication to prove that that the token is real and specific to its owner. NFTs are being popularly leveraged for things, such as artwork and media recordings, as a way for users to own unique assets.
Asset-Backed Tokens
Traditional, physical assets, such as gold and oil, can be tokenized and traded amongst users on the blockchain through the usage of asset-backed tokens. Tokenization of these assets can help to liquidity problems with the assets and make them more available to a wider range of investors and users.
Tokenized Commercial Real Estate
Similar to asset-backed tokens, commercial real estate can now be tokenized as a digital asset. This process of tokenizing real estate can open up ownership opportunities to more investors through improved liquidity, more transparency for proofs of ownership, and simplification of transactions.
How to Tokenize Digital Assets for Your Marketplace
Marketplaces that are looking to tokenize physical assets into digital ones tend to follow the below process:
Value
Identify and determine the value of the physical asset that is being tokenized.
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Identify and determine the value of the physical asset that is being tokenized.
Price
Determine the price of digital shares. The asset, such as a physical share or a bond certificate, must have a defined value for its physical form.
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Determine the price of digital shares. The asset, such as a physical share or a bond certificate, must have a defined value for its physical form.
Shares
Once this value is determined, the digital version will be broken down into a number of shares that total up to the real-world value, with each share representing the digital asset’s value. During this step, it is important to determine how many available shares there should be.
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Once this value is determined, the digital version will be broken down into a number of shares that total up to the real-world value, with each share representing the digital asset’s value. During this step, it is important to determine how many available shares there should be.
Benefits of the Nasdaq Marketplace Services Platform
All-In-One Platform
Nasdaq’s Marketplace Services Platform provides marketplaces with trading and surveillance technology. Our service-based platform features an easy-to-activate, modular structure, which allows businesses the ability to scale as needed. The Marketplace Services Platform can easily integrate with independent software vendors (ISVs), partners and participants to manage the full range of requirements for your organization. In addition, the Marketplace Services Platform is available in multiple cloud environments that allow for seamless integration.
Tailored Infrastructure
Marketplaces are constantly evolving and changing. With these evolutions comes the need for more tailored infrastructure that can allow for more transparency, certainty, reliability, and scalability. As these new market models may face unique and new regulatory and business needs, the Nasdaq Marketplace Services Platform’s reliable and scalable infrastructure can grow and will not fail during moments of peak volatility, with the seamless addition of asset classes, as well as support large trading volumes.
Simplistic Operations
Operational complexity is one of the main hurdles that marketplace organizations face. The Marketplace Services Platform helps to ease technical burdens on resources and simplifies the IT management for the platform. These improvements can decrease capital expenditures due to a SaaS (software as a service) delivery model.
Functional Onboarding
In an ever-changing environment, time to market is critical for marketplaces. Nasdaq Marketplace Services Platform helps to decrease time to market compared to on-prem delivery cycles. Beyond the initial launch, the Marketplace Services Platform also continuously enhances performance and functional depth through frequent release cycles, reducing the need to manage ongoing patch cycles.
Unparalleled Security Protocols
Security is an extremely important factor for establishing the reliability and trustworthiness of a marketplace. Nasdaq Marketplace Services Platform offers market surveillance to ensure that transactions occurring on your marketplace are safer, securer, and within risk limits determined by the marketplace. These security protocols can help detect irregular transaction patterns and potentially manipulative behavior.
Scalable Configuration
Each marketplace is different, and the needs of these marketplaces should be factored into the platforms that support them. With Nasdaq Marketplace Services Platform, marketplaces can benefit from a platform that is adaptable to the needs of your specific marketplace and understands the complex workflows throughout the transaction lifecycle.
Interested in learning about how Nasdaq can support your unique marketplace?
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