Will you lend $500 to a person who would repay you $750 within a month, or $500 to a friend who would repay you $1500 in three years? Many investors prefer the former, yet both the cases offer benefits. When it comes to investing, this example may be used to compare liquid and illiquid assets.
Liquid assets can be converted into cash at reasonable prices in a short time. Liquid assets are also ‘cash-like’ and may include cash alternatives that carry a lower risk of loss (the matter of how long they are kept), such as a certificate of deposit (CD), a money market account (MMA), a money market fund (MMF), or U.S. Treasury bills. Liquidity provides investors with flexibility and reduces potential risk by allowing them to generate a return while still having hands on the cash when required.
On the other hand, illiquid assets cannot be converted into cash in a short time without loss of value. These include venture capital, infrastructure finance, private placement loan issuances and real estate. Selling illiquid assets takes time. Still, there is the possibility of higher returns over time and opportunities for diversification.
Real estate is the most illiquid asset because it exactly complies with the definition. But now this concept is obsolete, as real estate assets can change hands faster than ever imagined. FraXion is a blockchain-based tokenized platform where anyone can invest and partner with the real estate giants of the United States. Above that, people and entities can sell their share in the form of a token anytime they want (with a few exceptions).
Through strategic alliances and partnerships with some of the most successful real estate developers in the United States, FraXion token holders may invest in prime income-producing properties and land suitable for rapid commercial development.
A large supply and great demand for an asset are required for higher levels of liquidity. Location, transaction costs, local market dynamics and conditions, capital availability, and zoning are the major factors that determine the level of liquidity in real estate.
FraXion is a non-traditional real estate investment platform that will allow smaller entities and individuals (not only institutions) to access prestigious real estate development ventures, working alongside huge development groups and some of the world’s most recognized institutional partners. When illiquid real estate investments are converted into tokens, direct investments in property gain the characteristics of indirect investments. As a result, the involved issuers may secure higher liquidity.
FraXion presents an innovative real estate investment vehicle that will diversify investment portfolios and assure the users that each invested dollar is backed by tangible real property, promoting investor confidence.
Liquidity achieved through boosted investment pools
An expanded pool of investors improves liquidity by making real estate assets available to a much larger audience. Tokenization may assist in creating a larger investment pool in a number of ways:
Globalization: Real estate tokenization expands the pool of investors by giving global access to assets. You may participate in tokenized real-estate ventures from anywhere globally if you have an internet connection and the necessary capital (not like in traditional real estate business).
Tokenization is getting increasingly popular. According to the DigiShares Industry Report, there were only 5 security token offerings (STOs) in 2017, but two years later the number of STOs increased significantly to 55. According to the same report, that figure is expected to expand at a compound rate of 59%, helping drive the STO market valuation sky-high.
Asset-backed security tokens (ABST), like tokens representing real estate assets (the world’s largest asset class), are projected to be the main driver of this growth. According to the existing forecasts, by 2030 the ABST market will be worth about $2T.
Reduced cost of entry: FraXion tokenization enables fractional real estate ownership, which expands the investment pool by lowering the entry barrier. It enables smaller companies and individuals to invest in larger, better-performing real estate assets.
Real estate transactions may be complex, expensive, and time-consuming. As a result, they are subject to an illiquidity discount, which reduces the sale price. Tokenization tends to counteract this by increasing liquidity while simplifying transactions at lower costs. It makes possible the ability to buy and sell tokens directly on the blockchain with no need to sign any documents or pay steep commissions to middlemen.
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