Exploring the Emerging

Token Economy
Unlocking the potential of tokenized real-world assets

© 2024 Hedera Hashgraph, LLC

TABLE OF CONTENTS

High Level Statement . 3

Current State of Asset Tokenization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Traditional Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Traditional Finance: Case Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Carbon Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Carbon Market: Case Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Digital Currencies / Cross-Border Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Digital Currencies / Cross-Border Payments: Case Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Real Estate: Case Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Commodities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Commodities: Case Study 14

Conclusion . . . . . . . . . . . . 15

Benefits of Tokenization on Hedera 16

© 2024 Hedera Hashgraph, LLC 2

High Level
Statement
The creation and subsequent proliferation of distributed ledger technologies as we know them today, spurred
by the creation of Bitcoin, did more than introduce the world to cryptocurrencies. As is being increasingly
explored at every level of the emerging digital economy, the underlying infrastructure holds enormous
potential to fundamentally revolutionize how institutions, enterprises, and individuals interact with one
another - enabling new functionalities to disrupt traditional markets on a global scale across industries.

A critical topic ever-increasing both in interest and practical application is that of real-world asset
tokenization: the digitization of physical or traditional assets represented on decentralized infrastructure
such as blockchain or similar forms of distributed ledger technology (DLT). The benefits of tokenization are
numerous and varied, and are why key players in traditional finance, real estate, payments, and more are
experimenting with and implementing this new and powerful functionality. As web3 continues on its journey
to becoming a core pillar of our future economy, asset tokenization introduces unprecedented opportunities
- unlocking the true value of real-world assets through the utilization of DLT.

© 2024 Hedera Hashgraph, LLC 3

Current State of
Asset Tokenization
Tokenization is revolutionizing global investment. This critical functionality - enabled by DLTs such as
blockchain or hashgraph - has the potential to significantly streamline investment processes in both
obvious and yet undiscovered ways. Whether it’s a piece of real estate, a bond, a currency, or even a
luxury good, tokenization provides enormous potential to unlock unprecedented value through improved
accessibility, increased liquidity, and operational efficiency.

The total current market size for tokenized real-world assets today is difficult to assess accurately due to
a combination of information asymmetry and lack of robust definition but is almost universally expected to
grow exponentially over the next several years. Conservative estimates project the value of tokenized real-
world assets to reach more than $4 trillion by the year 2030 1, while more “optimistic” estimates predict a
value of over $16 trillion by the same year 2. This growth is fueled by the increasing institutional adoption of
DLT, the growing demand for fractional ownership, and the need for more efficient and transparent asset
trading. As DLT-enabled tokenization initiatives continue to be led by major institutions, the private banking,
asset management, real estate, and environmental finance sectors are emerging as key distribution
channels for tokenized assets.

Tokenization transcends mere convenience and accessibility, serving as a catalyst for the seamless
exchange of assets and enhancing liquidity in traditionally illiquid markets such as real estate. By
fractionalizing assets into smaller, more manageable units, a broader spectrum of investors can partake
in ownership, improving market liquidity. The integration of decentralized infrastructure streamlines
transactions, lowers costs, and diminishes the need for intermediaries, paving the way for a more
economical financial framework. Looking to the future, the intersection of tokenization, investment
opportunities, and payments will continue to be increasingly explored by institutions and enterprises,
holding monumental potential to fundamentally redefine investment and financial interactions.

1
https://www.citigroup.com/global/insights/citigps/money-tokens-and-games
2
https://www.bcg.com/publications/2022/relevance-of-on-chain-asset-tokenization

© 2024 Hedera Hashgraph, LLC 4

Traditional
Finance
The traditional finance (TradFi) market as it stands today suffers from a broad range of systemic operational
inefficiencies. These include but are not limited to slow settlement times, limited access to investment
opportunities, and a lack of market transparency, leading to unnecessary costs, asymmetric information,
and untapped market potential. For institutions and enterprises, there is a growing trend of exploring how
blockchain and other DLTs can address these aforementioned inefficiencies and transform the market as
we know it today, with asset tokenization being at the heart of this revolutionary shift.

Tokenization enables cost-effective, real-time transaction settlement of digital assets, which can take days
with traditional assets due to the inherent inefficiencies associated with multi-party interdependencies.
What normally takes 1-3 days 3 can now be accomplished in minutes, if not seconds (depending on the type
of decentralized infrastructure used) unlocking massive, untapped levels of liquidity that would otherwise be
locked up in legacy processes while intermediaries slowly reach consensus on the transfer of value.

As an example of the benefit this brings to investors and funds, we can look at money market funds# dividends
intended to be immediately reinvested for optimal compounding. It is common for positions in money market
funds to compound daily - maximizing returns whenever dividends are calculated and distributed. Since
dividends regularly take multiple days to settle with the investor, any days spent processing the transaction
is - for the investor - money lost on the interest that would have accrued had the dividend been paid out
immediately and - for the fund - liquidity that could have been used to improve the fund’s position.

Furthermore, tokenization enables the democratization of access to traditionally gated investment

opportunities such as high-value bonds with high minimum investment requirements through
“fractionalization”: the practice of breaking-up an asset into smaller pieces that represent a portion of the
collective asset. By breaking down these assets into more affordable units, fractionalization allows investors
to purchase just a fraction of a bond and receive proportional returns from it. This not only lowers the
barrier to entry allowing a wider range of investors to participate, but also greatly enhances liquidity through
secondary markets and lower transaction costs compared to traditional trading methods.

3
https://www.investopedia.com/ask/answers/what-do-t1-t2-and-t3-mean/

© 2024 Hedera Hashgraph, LLC 5

Traditional
Finance

CASE STUDY

As is to be expected given the still relatively nascent concept of tokenization, the vast
majority of the fund industry is still subject to the inherent inefficiencies of legacy financial
systems. Typically, money market funds - like all mutual funds - have relatively slow payout
and settlement times, resulting in untapped liquidity and suboptimal returns.

Standing at the forefront of demonstrating the potential for tokenization to revolutionize

fund management is leading UK-based fund management firm, abrdn, and digital asset
solutions provider, Archax. In collaboration with abrdn, Archax has begun to offer tokenized
investments in abrdn’s £multi-billion money market fund 4, with interests tokenized by and
secured on the Hedera network using the native Hedera Token Service.

By tokenizing both investments and interest paid out to investors, abrdn is able to
offer immediate and automatic reinvestment for its customers and reduce liquidity
fragmentation. Investors no longer have to endure the typical waiting period for
transactions to clear. Instead, they can see their transactions settled instantly, which is
particularly beneficial in a fast-paced financial environment where timing can significantly
impact investment outcomes - especially regarding funds that provide options for daily
compounding.

abrdn and Archax are not only simplifying the investment process and reducing unnecessary
operational overhead but also enhancing the potential for investors to realize greater
returns on their investments. As institutions grow to realize the enormous benefits for both
customers and providers that abrdn has already begun to reap, tokenization will cease to
exist on the fringe and cement its place as a core pillar of modern finance.

4
https://blog.archax.com/resources/news/archax_tokenises_investment_in_abrdn_multi_bn_money_market_fund

© 2024 Hedera Hashgraph, LLC 6

Carbon
Market
The carbon market, an essential component to reducing greenhouse gas emissions, is currently experiencing
significant growth. The World Bank reported in 2023 that revenues from carbon taxes and Emissions
Trading Systems (ETS) reached about $95 billion for the year 5, covering almost a quarter of global
emissions. However, the market faces challenges such as information asymmetry, inefficiencies, and lack of
transparency, which can hinder its effectiveness and scalability.

Tokenization of Environmental, Social, and Governance (ESG) assets, including carbon credits, offers a
solution to many of the market’s current inefficiencies. By converting these assets into digital tokens,
tokenization provides increased liquidity, auditable transparency, and improved accessibility to the still
emerging industry.

The value of the carbon offset market is substantial and expected to increase dramatically. In 2020, the
voluntary carbon market was valued at $2 billion according to Boston Consulting Group and is projected
to grow to between $10 billion and $40 billion by 2030 6. Long-term forecasts are even more optimistic,
with Morgan Stanley estimating that the market could be worth up to $250 billion by 2050 7 as demand for
instruments of carbon reduction increases.

However, tokenization will undoubtedly be heavily utilized to fully realize the potential of this growing market
due to the high programmability, auditable transparency, and standardized discoverability that digital
assets have the potential to provide.

5
https://www.worldbank.org/en/news/press-release/2023/05/23/record-high-revenues-from-global-carbon-pricing-near-100-billion
6
https://www.bcg.com/publications/2023/why-the-voluntary-carbon-market-is-thriving
7
https://www.morganstanley.com/ideas/carbon-offset-market-growth

© 2024 Hedera Hashgraph, LLC 7

Carbon
Market

CASE STUDY

As governments, institutions, and enterprises drive towards net-zero goals, effective and
trusted methods of decarbonization are increasingly sought after and valued for a greener
tomorrow. In the quest for sustainability, Avery Dennison’s connected produced cloud -
atma.io - is a beacon of innovation.

By integrating with the Hedera Consensus Service and utilizing the open source Guardian
framework for ESG asset creation and discovery, atma.io is enabling businesses to track
the product life cycles and accurately account for the carbon emissions of over 30 billion
of unique physical items 8 with unprecedented granularity - enabling real-time traceability
and tokenization of carbon footprints to offer tangible ways for enterprises to meet net-
zero emission targets.

The Hedera network - as the distributed ledger technology with the lowest carbon footprint
in the market 9 - proved to be the ideal infrastructure for atma.io to integrate with to
accomplish Avery Dennison’s technological vision for the platform. From the inception of
the Hedera network, sustainability has been at the core of its values, aligning well with the
values of Avery Dennison.

As atma.io scales its capabilities, it sets a new standard for environmental accountability.
The future of decarbonization looks promising, with innovations like atma.io leading the
charge towards a more sustainable world.

9
http://blockchain.cs.ucl.ac.uk/blockchain-energy-consumption/

© 2024 Hedera Hashgraph, LLC 8

Digital Currencies /
Cross-Border Payments
The current landscape of global finance is a complex web of intermediaries, inefficiencies, and legacy systems.
Traditional cross-border payments are often slow and expensive, foreign exchange transactions are subject
to fluctuating rates and high fees, creating uncertainty and risk, and the fragmented nature of currencies
has resulted in an environment lacking in standardization and interoperability.

DLTs and the tokenization capabilities they enable have the potential to revolutionize this landscape. By
providing a decentralized, transparent, and secure method of recording transactions, these technologies
can eliminate many of the inefficiencies inherent in the current system. For instance, stablecoins such as
USD Coin can enable faster, cheaper, and more transparent cross-border payments by removing the need
for intermediaries. Similarly, DLT can provide a more stable and efficient method of conducting foreign
exchange transactions, reducing risks and uncertainties.

These technologies have the potential to fundamentally reshape the way we conduct international
transactions, creating a more inclusive, efficient, and secure global financial system. By democratizing
access to financial services, DLT and blockchain could empower individuals and businesses around the
world, fostering economic growth and financial inclusion. While challenges remain, the potential for DLT to
transform cross-border payments and foreign exchange is immense.

© 2024 Hedera Hashgraph, LLC 9

Digital Currencies /
Cross-Border Payments

CASE STUDY

The international money transfer industry is fraught with challenges - high transaction
fees, slow processing times, and a lack of transparency. These issues are particularly
pronounced for migrant workers and their families, who often rely on these remittances
for their livelihoods.

Shinhan Bank - the oldest financial institution in South Korea - in collaboration with
SCB TechX and the largest financial institution in Taiwan recently completed a
proof-of-concept stablecoin remittance pilot 10 on the Hedera network - achieving
real-time settlement and real-time foreign exchange rate integration across tokenized
representations of the Thai Baht (THB), New Taiwan dollar (NTD), and South Korean
won (KRW).

The pilot’s success is a testament to the transformative potential of tokenized

assets, demonstrating that it is possible to conduct cross-border transactions that are
not only faster and cheaper but also more transparent than traditional methods.

By harnessing the power of tokenization in the form of stablecoins, these institutions

have shown that it is possible to overcome the limitations of the current paradigm
and pave the way for a more efficient, transparent, and equitable financial system.

10
https://hedera.com/blog/shinhan-bank-scb-techx-successfully-pilot-stablecoin-remittances-on-the-hedera-network

© 2024 Hedera Hashgraph, LLC 10

Real
Estate
Real estate is one example of a traditionally illiquid asset, the market of which is set to be greatly disrupted
with the introduction of tokenization. While the market for commercial and residential real estate turns
over trillions of dollars every year regardless of macroeconomic conditions, the relatively high capital
requirements for those looking to purchase and/or invest in such assets make the market largely prohibitive
to the majority of prospective participants. This affects not only buyers but sellers as well, where a lack of
adequate liquidity restricts both the number of people available to purchase and, consequently, reduces the
collective capital available to potentially be used for buying or investment on any given property.

Through tokenization, the traditionally illiquid nature of real estate can now be challenged to bring improved
liquidity, effective price discovery, and increased accessibility to the market. A key functionality enabled
by tokenization is fractionalization. This relatively new concept of “fractional ownership” enabled through
tokenization brings unprecedented benefits to an increasingly inaccessible real estate market, reducing
capital-intensive barriers to entry for buyers and increasing the number of potential buyers for sellers.

For example, imagine a scenario with a property on the market for $100,000. The seller is looking for someone
with either $100,000 to spend or enough capital to secure a mortgage through which he will then be in debt
and required to make payments towards. Both options are restrictive in their own ways: the former requires
capital that a vast majority will not have or be willing to spend, and the latter involves taking on long-term debt
(in addition to any down payment which in itself may be unfeasible). The inherently high capital requirements
of the real estate market means that sellers are unable to tap into the true potential of the collective market
and potential investors or buyers are restricted from participating due to a lack of sufficient capital.

Now let’s introduce tokenization into the equation. The seller tokenizes the property, enables fractional
ownership, and lists it on the open market. Whereas before, the pool of prospective investors was made up
of those able to pay $100,000, through tokenization, that pool now includes those willing to pay just $50,000
for a 50% share of the property, those willing to pay $10,000 for a 10% share of the property, those willing
to pay $1,000 for a 1% share of the property, and so on. Sellers can market their property to a wider base of
potential buyers, and buyers are no longer restricted due to a lack of capital. In this way, a traditionally and
relatively illiquid real estate asset becomes highly liquid with minimal friction in buying and selling.

© 2024 Hedera Hashgraph, LLC 11

Real
Estate

CASE STUDY

In the rapidly evolving world of commercial real estate, RedSwan CRE is making waves by
leveraging distributed ledger technology.

Recognizing the potential of DLT, RedSwan has launched its token studio on the Hedera
network for asset tokenization 11. This innovative approach allows for the tokenization and
fractionalization of real estate, leading to increased liquidity, improved price discovery,
and reduced operational fees. By fractionalizing assets on the platform, RedSwan is
democratizing access to real estate investment opportunities.

Utilizing the native Hedera Token Service, RedSwan can tokenize institutional-grade real
estate efficiently and securely with a combination of speed, sustainability, security, and low
fixed fees. Network-native KYC and AML functionalities mean that RedSwan can both
issue their tokens as securities and adjust their product offering in line with regulatory
bodies, with protocol-enforced royalties to ensure equitability throughout asset lifecycles.

With $5B in tokenized assets and an expectation of growing to $25B in the next year,
RedSwan is not just disrupting the commercial real estate market but also shaping its
future - broadening opportunities for investors and introducing unprecedented liquidity to
traditionally illiquid assets.

11
https://www.hbarfoundation.org/blog-post/redswan-cre-builds-its-token-studio-on-hedera-for-real-world-asset-tokenization

© 2024 Hedera Hashgraph, LLC 12

Commodities
The commodity market is characterized by volatility and complexity, and is not immune to the structural
inefficiencies. One of the main issues commonly referenced with discussing the commodity market is the
lack of transparency, resulting in market opacity, fragmentation of reporting, and insufficient data 12.

Tokenization can significantly mitigate the inefficiencies of information asymmetry and lack of transparency
in commodity markets. By representing commodities as tokens, each transaction is immutably and
transparently recorded, providing an auditable chronological record of ownership and trades. This
transparency helps reduce the opacity that often leads to market inefficiencies, as all market participants
have access to the same information regarding the supply, demand, and provenance of commodities.

Furthermore, tokenization can enable more granular data to be collected at each step of a given commodity’s
lifecycle. DLT allows for the integration of real-time data from various sources, such as IoT sensors and
supply chain updates, which can be attached to the tokenized asset, resulting in a richer dataset that is
readily available to all market participants for enhanced decision-making processes and more accurate
price discovery.

The increased data availability and improved market intelligence can lead to more efficient and fair markets,
ultimately benefiting all stakeholders involved.

12
https://www.fsb.org/2023/02/the-financial-stability-aspects-of-commodities-markets/

© 2024 Hedera Hashgraph, LLC 13

Commodities

CASE STUDY

Diamonds have long been considered symbols of wealth and exclusivity for the elite, but
as investment vehicles they have lagged due to information asymmetry and inadequate
market liquidity. However, the advent of diamond tokenization by Diamond Standard is
disrupting this status quo, democratizing access to diamond investments for a broader
audience using distributed ledger technology and introducing unprecedented liquidity to
the market.

Diamond Standard’s suite of asset-backed tokenized diamond investments - Carats, Coins,

and Bars respectively in ascending value - is a pioneering step in this direction. By leveraging
the Hedera network and the native Hedera Token Service, Diamond Standard has created
a secure digital alternative to traditional commodity investing, making diamond investment
accessible to anyone with as little as $100.

Investors are constantly seeking ways to diversify their portfolios and hedge against market
volatility and inflation. Diamond Standard’s tokenized diamond solution provides a digital
asset that combines the security of physical commodities with the increased liquidity and
accessibility enabled by distributed ledger technology.

By tokenizing diamonds, Diamond Standard is not only creating a new asset class but
also ensuring that this asset class is inclusive, secure, and poised for the future. It’s a
revolutionary step forward, one that could pave the way for the democratization of various
other traditionally exclusive investment assets.

11
https://www.hbarfoundation.org/blog-post/redswan-cre-builds-its-token-studio-on-hedera-for-real-world-asset-tokenization

© 2024 Hedera Hashgraph, LLC 14

Conclusion
Real-world asset tokenization stands as a transformative force in the financial landscape, offering a
bridge between traditional asset classes and the world of digital finance. By digitizing the value of tangible
assets and securing them on distributed ledger technologies, the process promises to democratize
investment opportunities and enhance both liquidity and accessibility across various sectors. From the
fractional ownership of real estate to the tokenization of commodities and environmental assets, the case
studies examined reveal a consistent trend towards increased enterprise adoption in the pursuit of
greater efficiency, inclusivity, and transparency. As we move forward, the potential for tokenization to
broadly reshape the financial ecosystem is immense, paving the way for a more interconnected and
accessible market.

However, the journey towards widespread adoption of asset tokenization is not without its challenges.
Regulatory clarity and industry-wide standards are paramount to fostering an environment conducive to
growth and innovation in this space; the concerns surrounding volatility, legal frameworks, and the
technical complexities of tokenizing assets must be addressed with a collaborative, cross-industry
approach. Despite these hurdles, the promise of a more efficient and equitable financial system through
tokenization is a compelling vision that continues to gain momentum. With careful navigation of the
regulatory landscape and ongoing technological advancements, the tokenization of real-world assets is
well on its way to becoming a cornerstone of the emerging decentralized economy.

© 2024 Hedera Hashgraph, LLC 15

Benefits of Tokenization
On Hedera
ENHANCED SECURITY AND FAIRNESS

The Hedera network’s hashgraph consensus algorithm provides improved security and fairness in
transaction ordering 13 compared to traditional blockchain solutions. Its consensus mechanism ensures that
transactions are finalized in the order they are received, reducing the potential for fraud and manipulation,
which is vital for maintaining trust when trading any asset.

STRONG GOVERNANCE MODEL

Hedera is governed by a council of diverse, reputable, world-leading organizations across a broad range of
industries, ensuring a stable and reliable network governance model 14. This governance structure provides
a level of trust and stability that is appealing to institutions, enterprises, and investors looking for a reliable
platform to tokenize assets.

UNMATCHED CARBON EFFICIENCY

Hedera is designed to be an energy-efficient network that addresses the environmental concerns associated
with blockchain technology. For businesses and investors increasingly concerned about sustainability,
Hedera’s low energy consumption for processing transactions is a significant advantage.

COMPLIANCE AND REGULATORY FEATURES

The Hedera Token Service provides native and programmable whitelisting capabilities designed to ensure
compliance with various regulatory frameworks 15 - a critical factor for tokenized registered assets trading.
These features enable the enforcement of Know-Your-Customer (KYC) and Anti-Money Laundering (AML)
regulations by allowing token issuers to control who can buy, sell, or hold their tokens. This is particularly
important in the real estate sector, where regulatory compliance is stringent.

CUSTOMIZABLE COMPLIANCE RULES

Hedera allows for the customization of compliance rules according to specified requirements. Token issuers
can set up their whitelisting criteria based on various factors, such as geographical location, investor
accreditation status, or transaction limits. This flexibility ensures that tokenization projects can be tailored
to meet different jurisdictions’ specific legal and regulatory requirements.

13
https://hedera.com/blog/fair-timestamping-and-fair-ordering-of-transactions
14
https://hedera.com/council
15
https://hedera.com/blog/get-started-with-the-hedera-token-service-part-2-kyc-update-and-scheduled-transactions

© 2024 Hedera Hashgraph, LLC 16

© 2024 Hedera Hashgraph, LLC