AMPnet APX: Solving the Asset Tokenization Scalability Problem
Tokenization is an approach to asset management that operates on the principle of representing and managing a tradeable asset on a blockchain — but if tokenization is so disruptive, why haven’t digitized assets supplanted traditional market standards?
Tokenization both digitizes assets and fractalizes the value of an asset, allowing for trading on a granular basis. The use cases and implications of tokenized assets are extremely varied. Virtually any asset — tangible, intangible, real, or financial can be represented by blockchain-based tokens.
Tokenized assets can include blockchain native cryptocurrencies, tokenized securities such as digital bonds, derivatives, or equities, or asset-backed tokens such as digitized precious metals or energy. Other examples of tokenized assets can include access or usage rights, collectibles such as NFTs, or information — such as healthcare records or intellectual property.
Asset tokenization holds significant potential to democratize vertical economic structures, delivering greater market access and enhancing liquidity. Despite the obvious benefits of asset tokenization, however, there exists a lack of structure and standards within the blockchain ecosystem.
Why Tokenize Assets?
Asset tokenization presents the opportunity for fractional ownership, minimizes operational friction, and delivers a more efficient means of transferring value between stakeholders.
Assets managed via blockchain-based tokens allow for a more secure and transparent management approach. Actors exchanging tokenized assets benefit from access to an immutable record of ownership and legal rights, faster and cheaper transactions, and greatly reduced overheads in asset management.
Tokenized assets unlock significant market potential, converting illiquid sources into bankable assets. Traditional financial ecosystems currently prohibit the participation of investors and audiences that fail to meet specific capital-intensive minimum investments. The fractional nature of tokenized assets allows investors to access second markets, increasing liquidity.
A large-scale tokenized economy democratizes access to financial services, enables more efficient business ecosystems, and eliminates the presence of intermediaries. Asset tokenization is complicated, however — how can we verify that the tokens exchanged in a tokenized economy are trustworthy, compliant, and are legitimately backed by the assets they represent?
The Problem With Asset Tokenization
Asset tokenization is highly transformative — in order to succeed, digital asset economies must address the legal definition of digitized assets and create operational frameworks that allow economic actors to verify the validity of on-chain tokens that represent real-world assets.
The first step of asset tokenization begins with minting or creating tokens. The absence of common standards that dictate how assets are tokenized, however, exposes investors to risk — in order to create marketplaces in which tokenized assets can be traded, formal frameworks that ensure trust across all stakeholders must be established.
Contemporary platforms focused on asset tokenization operate in a centralized manner. Investors considering investing in tokenized assets issued by centralized token issuers must perform extensive due diligence to determine whether the assets the tokens they represent exist.
The issuance of tokenized assets can be approached in two different ways — a direct issuance model, or through a model that leverages blockchain governance models to verify token validity.
In a direct issuance model, the issuer of a tokenized asset is liable for claims against the token. Direct issuance is the current issuance standard within the tokenization ecosystem but presents centralization and risk issues.
Direct issuance creates token ecosystems in which thousands of different tokenized assets are issued by thousands of different issuers — an inefficient solution that is incapable of scaling with market demand.
Blockchain-based asset verification, however, delivers greater transparency in the issuance of tokenized assets without the need for centralized arbitration.
How AMPnet’s APX Solution Solves the Tokenization Problem
AMPnet’s APX protocol facilitates the on-chain creation and verification of tokenized assets without the need for centralized third parties. Rather than rely on a direct issuance model, APX allows anybody to join the APX ecosystem and issue digitized assets while ensuring all assets are backed by real-world assets.
APX achieves asset verification through an incentivized auditor pool that consists of independent decentralized auditors. These auditors work to verify the token issuers and tokenization platforms that operate within the APX ecosystem, measuring risk, complexity, and issuer behavior.
Tokenized assets issued by APX ecosystem participants must stake a scaling amount of value into a liquidation reserve, which is calculated based on risk and complexity.
APX verified assets can be traded on the APX DEX, or as freely-tradable ERC20 tokens in the form of APX trusted synthetics, delivering interoperability and allowing anybody to trade any tokenized asset anywhere ERC20 tokens can be exchanged.
The APX ecosystem is designed to address the core issues that inhibit the growth of a free, democratic tokenized asset economy in which any asset can be digitized and traded in a secure, trustworthy manner.
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