An asset-backed token is a blockchain token that is connected to a tangible or intangible object that has economic value. There are fungible (often referred to as security tokens) and non-fungible asset-backed tokens that can represent various real-world (physical) assets. Non-fungible means that one unit is not equal to another similar unit, two diamonds of equal dimensions are still not interchangeable. An asset-backed token essentially digitizes an asset and records its associated information on a blockchain.
Types of asset-backed tokens
While there a few different types of token models for asset backing, ERC721 is currently the most common non-fungible token (NFT). ERC721 will likely become increasingly popular throughout 2018 although the ERC821 NFT standard looks like it could be promising as well.
General benefits of asset-backed tokens:
Asset-backed tokens can provide many benefits including:
- Securitization of assets
- Ownership rights
- Decreased volatility of crypto-assets
- Definable intangible assets
One of the main challenges for cryptocurrencies becoming mainstream is price volatility. Cryptoassets are incredibly volatile and are likely to remain volatile until a rational and more liquid market develops. Asset-backed tokens have the ability to take traditional assets, such as real estate, precious metals, intellectual property, and combine them with decentralized blockchain asset properties (efficient securitization, trustless transactions, etc). These new hybrid traditional-crypto assets will naturally be less volatile than current crypto-assets, helping the market stabilize.