Tokenization of assets and government bonds

Source-This post on Tokenization of assets and government bonds has been created based on the article “RBI plans tokenization of assets, bonds under wholesale CBDC pilot” published in “Business Standard” on 10 February 2024.

Why in the news?

The Reserve Bank of India (RBI) plans to explore the tokenization of assets and government bonds as part of its wholesale Central Bank Digital Currency (CBDC) pilot project.

About Tokenization of assets

Definition– It is the process whereby ownership rights of an asset are represented as digital tokens and stored on a blockchain.
Tokens can act like digital certificates of ownership that can represent almost any object of value such as physical, digital, fungible, and non-fungible assets.

Mechanism of tokenised asset

It involves several step such as-
1) Defining the token type (fungible or non-fungible)
2) Selecting the blockchain to issue the tokens on
3) Selecting a third-party auditor to verify off-chain assets, issuing the assets.

Significance of tokenised asset

1) Liquidity-An asset can be represented as millions or even billions of tokens, creating fractional ownership. This can be listed on a variety of widely-available and accessible exchanges.

2) Accessibility-It allows a smaller investor to invest in riskier assets with relatively low capital.

3) Transparency– It allows for the open tracking and auditing of all records due to the fundamentally public nature of many blockchains.

Read more about-Central Bank Digital Currency

UPSC Syllabus-Indian economy.