LeoGlossary: Fractional Ownership
Fractional Ownership is a way that multiple parties, often unrelated, can own a piece of an asset. This can be something physical such as a yacht or plane or intangible as in a business.
The best known fraction ownership method is stocks. Under this scenario, a corporation is owned by the shareholders. This entitles them to a distribution of the profits along with any value appreciation in the business or equity position.
Income potential is only one of the reasons to embark upon this setup. People often do it to mitigate the risks or to share expenses. Real estate is another area where see this concept often applied.
Some of the benefits of fractional ownership are:
- usage rights
- income sharing
- priority access
- reduced rates
Liquidity And Costs
Some fractional ownership assets such as stocks have great liquidity. Here they are traded on exchanges where one can enter or exit positions rather easily. This means the disposal of the asset ownership can happen quickly.
Cost is another factor. Liquid assets are relatively inexpensive to transact in. Both entering and exiting of a stock comes with, at most, a nominal fee. Today, that is a rarity as most brokerage firms did away with commission on trades.
Non-liquid assets do not enjoy either of these benefits. It is rather slow to acquire while also being very costly. Attorneys are usually involved and much of the process is on "paper". Agreements are drawn up outlining the rights and responsibilities of each party.
Just consider the process of buying or selling real estate and art. Even if the entire asset is owned, it is a slow and expensive process. Fractional ownership only adds another layer of complexity (and cost) to the equation.
Cost and speed are why so many feel that tokenization of assets, both physical and intangible.
Tokenization is the process of creating tokens which represent specific units in the asset and is housed on a decentralized network called blockchain. The tokens are liquid when exchanges are established allowing individuals to swap them for other assets.
All transactions are recorded using distributed ledger technology. Since blockchains are immutable, ownership of the token is not questioned. Therefore, ownership is always know based upon which wallet the token resides. The owner is the one with the private key that accesses that address.
- greater liquidity
- higher accessibility
- more transparency
- no intermediaries
- cheaper and faster transactions
Estimates are that tokenization will amount to $24 trillion by 2027.
Posted Using LeoFinance Beta