Asset tokenization can help the unbanked in Latin America achieve financial inclusion.
Asset tokenization driven by blockchain technology is poised to transform financial systems in Latin America by promoting transparency, efficiency, and inclusivity.
According to a report released by Mastercard and Ava Labs, asset tokenization has the potential to revolutionize the financial systems and overall economy of Latin America.
The layer-1 Avalanche blockchain’s developer, Ava Labs, co-authored a white paper published by payment services behemoth Mastercard on January 21. The significance of blockchain-driven asset tokenization technology in finance was underlined in the report, which said:
“Asset tokenization shows promise for increased operational and cost efficiency, better data management and interoperability, and new business opportunities in the financial sector.”
Using asset tokenization to promote financial inclusion
Asset tokenization has the potential to reduce entry barriers into capital markets in developing regions like Latin America, particularly for those without bank accounts.
The report also listed three main justifications for institutions to choose tokenization: faster transactions and settlements, fractional ownership, and lower risks related to manual procedures and siloed systems.
By restoring trust and transparency, which have historically been hampered by systemic inefficiencies, asset tokenization can have a major positive socioeconomic impact on Latin America.
Overcoming systemic inefficiencies with blockchain solutions
Transferring ownership of non-cash assets, like real estate, for instance, can contribute to a more inclusive financial system by enabling a large portion of the population that is not banked to engage directly and without authorization in these markets.
Brazil, Argentina, and Mexico are among the top 20 nations with the highest adoption rates of cryptocurrencies, according to the report. Local regulators have not yet adjusted to the crypto economy, though.
“Transparent ownership tracking, streamlined asset transfers, and integration with DeFi could put Latin America at the forefront, but it would require a lot of support from the government.”
The report claims that tokenization is opening up trading, lending, and borrowing options for RWAs in decentralized finance (DeFi). However, among the main obstacles in the asset tokenization space are interoperability, technological complexity, and regulatory uncertainty.
The necessity for scalable, privacy-preserving solutions is highlighted by the need to address institutional requirements. To find out more about turning physical assets into digital ones, read Cointelegraph’s beginners’ guide.
