At HiP, we look at the world differently; we believe in the potential of new technologies to inspire and positively influence the way we live and the way in which the world views property ownership. HiP is developing an ecosystem that will enable users to realize their goals of home ownership that were previously out of reach. We believe that the potential of financial innovation, paired with emerging technologies, can create financial services that are not so crippling for the user, and offer an entirely new level of financial freedom.
In this article, we will be discussing the nuanced differences between fractionalization and tokenization, as the two terms are often misconceived and assumed to mean one and the same thing.
In the blockchain space, to fractionalize an asset does not necessarily mean that the fractions are represented by a cryptographic token; although this is the common misconception. When an asset is fractionalized in the manner that HiP aims to, the property is divided into economic units, which then become tradable as a commodity.
HIP will fractionalize debt and equity, which can in turn be bought by the market as part of a portfolio. These portfolios will be managed by algorithms or fund managers, and also accommodate for the interaction of debt and equity, unique to our platform. A portfolio may contain equity and debt assets in properties from all around the globe, or localized to a specific geographical area. We believe that this method enables a more fluid environment for investing, and produces higher liquidity; also enabling flexibility in the creation of financial services (this differs from tokenized assets traded individually).
As the Token Sale community grows and develops, alongside regulatory efforts to ensure the safety of investors, many blockchain start-ups are designing asset-backed tokens – each tied to a proportion of an individual property or asset such as a work of art. In doing so, these companies designate their token as a security, as the token is a vehicle for direct financial gain – also giving supposed security to the investor due to the token representing a portion of capital in the ‘real world’.
Conceptually, tokenization is similar to fractionalization yet lacks the potential liquidity of a model such as ours, and has no consideration for the implied debt financing structures of the users. At HiP, our focus lies on the potential of utility tokens to form a community that fosters active participation, product innovation and community building. Token holders will add value and credibility to the HiP ecosystem through active participation in return for rewards, discounts, voting rights and other incentives.
To conclude, one of the things that asset-based tokenization and asset fractionalization have in common is the ability to share economic ownership; enabling the partial release of asset value for cash. HiP’s fractionalization of equity and debt, which will interact with one another, is a different value proposition, and offers the potential for financial product innovation which simple tokenization of a property does not. We understand the potential of asset tokens, but recognize their limitation when applied to individual properties. We are in the process of exploring asset tokens in a much broader context, and will be focusing on how they could potentially increase liquidity within our ecosystem.