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Tokenization of Classic Cars: Diversification of Financial Assets?

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Classic cars are a very traditional industry. The tokenization of classic cars by startups like Amazing Blocks AG could transform this industry if classic cars are fractionated into many pieces to facilitate investments in this asset class. A guest contribution by Nicolas Weber and Paul Zimmermann.

When the 1962 Ferrari 250 GTO sold for more than $ 48 million at RM Sotheby’s auction on August 25, 2018, some were amazed at the amount of money for a 30-year-old car. Cars tend to be considered a “bad investment” because their value drops sharply after purchase and only human emotions give them their true “intrinsic value”. But maybe it is precisely this emotional attachment to cars that makes them so attractive from an investment point of view. Classic cars are often sold and bought through different channels, their value is estimated according to different models, and overall the industry is very fragmented regionally. The tokenization of these assets by start-ups like Amazing Blocks AG could solve the problems mentioned and lead the market to a standardized, equally fair system. This will further strengthen this valuable industry.

How issuers and investors can benefit from the tokenization of classic cars

Investing in alternative assets such as classic cars can have great advantages over traditional investments. After the high volatility on the stock and currency markets in the wake of the Covid-19 pandemic, aspects such as stable value became more and more relevant when looking for investments. Classic cars offer efficient protection against inflation and thus take on the role of a store of value. Tokenization allows ownership of vintage cars and other illiquid assets to be distributed as part ownership is made possible. This creates perfect conditions for a diversified portfolio to minimize risk.

Small investors can now also participate in such investments, as they can easily acquire shares in the typically expensive classic cars. This will result in a far greater inflow of capital as classic cars are converted into 24/7, peer-to-peer tradable assets for everyone. In addition, it is easily feasible to liquidate your assets at any time and day you want without the usual hurdles such as lawyer, paperwork and costly working hours. In addition, tokenized assets are much more attractive for tax purposes in Liechtenstein. You can learn more about this when you connect with the experts at Amazing Blocks.

In general, alternative investments offer promising returns as they often have an anti-cyclical effect and thus diversify your portfolio. Nevertheless, prosperity has disadvantages such as poor transparency and a lack of liquidity in the market. This is associated with a high level of risk on both sides – the investor and the owner. To counteract this, the unique Liechtenstein Token Act was introduced in January 2020. It enables the perfect legal conditions for real equity and ownership tokens. In this model, the disruptive framework offers a legally compliant structure for the tokenization of property-based rights. Amazing Blocks is a first mover in this area, for example by carrying out the world’s first real equity tokenization and establishing a bankless establishment exclusively with ETH as the first deposit. Amazing Blocks provides software as a service for full lifecycle management and detailed blueprint for incorporation and tokenization of legal entities.

Based on the unique Liechtenstein Token Law, a physical validator within the blockchain level enables a fully legal and licensed transfer of ownership after the respective tokenization. This makes the efficient buying and selling of tokenized assets immediately possible, while functions such as fundraising-on-the-go are some of the accompanying advantages. Illiquid collectibles such as classic cars are thus becoming a new, dynamic asset class. This gives the more localized industry (e.g. Germany as a hub) international access to investors, paired with the promised liquidity through tokenization. Even a fund for tokenized classic cars is possible by investing in various classic car tokens under one authority.

A quick summary of tokenization

Based on smart contracts, so-called tokenization will disrupt today’s business models. With the Token Container Model (TCM), the small state of Liechtenstein has created an ideal explanation for this. In this context, a token is to be understood as a “technical container” that can contain rights of all kinds. This approach establishes a vehicle (e.g. token) for a right or an asset and enables these to be divided. The special purpose vehicle is embodied by ETH-based ERC20 tokens on a blockchain-based level. In this way, a distinction is made between (1) law and (2) technology. This leads to numerous advantages. Tokenization creates the basis for the digital finance and investment economy of the future. The gradually growing fusion of technology and finance is thus promoted. The process of tokenization is shown in Figure 1 below. Behind the tokenization is the blockchain technology, which works primarily on the basis of the “relationship model” of the private and public keys within these systems, the foundation of a sustainable “tokenomy”. Please visit the Amazing Blocks website for more detailed information.

Tokenization of Classic Cars: Diversification of Financial Assets?
Figure 1: The token container model (Source: The Liechtenstein Blockchain Act (March 3, 2019), Government of the Principality of Liechtenstein)

All content in this article is for informational purposes only and in no way serves as investment advice. Investing in cryptocurrencies, commodities and stocks is very risky and can lead to capital losses.

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