Illiquid assets are inherently problematic since they do not accrue instant value, making their owners wait to capitalize on them. This is suboptimal since the time-value of money dictates that such an asset’s worth will always be diminished in relation to its present value: a dollar spent today is more valuable than one spent tomorrow.
While it is easy to think about illiquid assets as being almost exclusively tangible things—such as artwork, livestock, furniture, vehicles, and collectible items—the reality is that the financial industry is full of them.
Chiefly financial illiquid assets include things such as microcap stocks, ownership interest in private companies, partnership shares in hedge funds, alternative investments, and some types of bonds and debt. Hence owners of these kinds of assets have to ask themselves how best to capitalize on them at their highest value. Usually, this is a convoluted and difficult question to answer, and doing so often costs money on its own. Advancement in this area—liquidizing illiquid assets—is slow, and both the tech and finance industries have been trying to figure out how to leverage this optimally. Yet in blockchain, there may be an answer.
Igor Khmel, CEO and Co-founder of BankEx, says on the issue, “Blockchain technology creates numerous benefits across industries and applications. Financial institutions can realize extraordinary efficiencies, streamline their back-office functions and reduce risk in the process. The process of tokenizing assets also opens up new avenues for liquidity as less liquid assets can be tokenized and traded, used as collateral for loans, and shared among multiple owners,” said Igor Khmel,
BankEx, a new blockchain fintech startup, is working to solve this problem. The BankEx playform serves as a decentralized banking Software-as-a-Service enterprise. BANKEX has invented a Proof-of-Asset Protocol (PoAP), which is “a standard enabling a new generation of assets and contracts called decentralized capital markets.”
“As we move to operations with real assets in cryptoeconomics, proof becomes more complicated. The intent of our Proof-of-Asset Protocol is to provide instant and continuous auditing of an asset that proves its existence and in turn minimizes the risk. This not only responds to the new and rapidly evolving challenges of blockchain but reshapes the modern understanding of the financial market,” added Khmel.
The advent of cryptocurrency and blockchain technology allows BANKEX to liquidize illiquid assets through tokenization. We’re still talking finance, not social studies here: tokenization is a financial term describing the creation of a large set of digital tokens, similar to how bitcoins are created, mined, and placed on the blockchain—and then tagging assets with those tokens to give them liquidity.
The PoAP uses initial information from any asset, like a gold watch or a car; the client, and the originator. BANKEX then conducts a thorough background check on the client, ensures the asset’s availability and location, verifies international delivery terms and legal conditions, before processing the asset token into the BANKEX ecosystem.
Once all of this information is gathered, it is put into a custom formula which is unique to every asset processed through BANKEX. The formula generates a smart contract, which is put into a second formula that transforms the smart contract into a smart asset. Once verified by BANKEX, the smart asset is then affixed as a token on the Ethereum blockchain to the illiquid asset, let’s say, a car, to make it valuable in a liquid capacity.
The car token then goes on the market, where it goes through different steps of financial engineering and product filtering. The platform matches asks with bids for the token. Their requests are patches as smart contracts, and then those contracts go on the BANKEX market.
Once there is a match between optimal buyer and seller, the price is finalized. BANKEX conducts a proof-of-mining to ensure all terms and conditions are met so everyone gets what they were promised, which verifies the value of both product token and smart contract. The product token is delivered in whole or fractionally to the buyer(s), and the seller gets BKX tokens, which then can be converted to fiat currency.
BankEx is scaling up its operations after partnering with Microsoft and Consensys to make their platform more powerful than ever. For more information, please visit http://bankex.com!