Tokenization of Real-World Assets in the Middle East

Tokenization of Real-World Assets in the Middle East

During the 2021 World Economic Forum held in Davos, discussions were held on how digital tokens can be used transparently and efficiently by investors and small and medium-sized enterprises (SMEs) in the Middle East and North Africa (MENA) to boost the economy of the region. The GDP of this region had contracted by 3.1% during the Covid pandemic in 2020, as per the International Monetary Fund (IMF). In response, the World Economic Forum’s Regional Action Group on the MENA developed a guiding framework that estimated tokenization could add $230 billion per year to the regional GDP (Source 1).

In recent times, businesses and enterprises have expanded their vision and aspirations to tokenize assets in the MENA region. For example, in September 2023, ADDX, a Singapore-based regulated tokenization platform, secured $140 million in venture capital from major Asian financial institutions, including the Singapore Exchange (SGX) and Stock Exchange of Thailand (SET). ADDX announced its plans to extend services to the MENA, assisting pre-IPO companies in utilizing blockchain for fundraising (Source 2).

Furthermore, HSBC Bank Middle East has partnered with the Abu Dhabi Securities Exchange (ADX) to explore fixed-income securities, including tokenized bonds. The partnership aims to use HSBC Orion, the bank’s digital asset platform, to issue digital bonds and list them on ADX (Source 3).

The Middle East is a region that has a lot of potential for tokenization, as it has a large and diverse market of real-world assets, such as oil, gas, gold, and real estate. Moreover, the region has a growing interest in and adoption of blockchain and digital assets, as evidenced by the initiatives and regulations of various governments, central banks, and private sector players.

One of the ways that the Middle East is supporting fintech innovation is by creating regulatory sandboxes, which are testing environments where entrepreneurs and innovators can experiment with their solutions in a controlled space. (Source 4)

Regulatory sandboxes allow regulators to engage with fintechs more quickly and at a lower compliance cost, in a controlled setting. They also enable fintechs to test their products and services in a real market scenario, without facing the full burden of regulation.

As per reports, there are 11 fintech regulatory sandboxes in the Middle East and North Africa (MENA) region as of November 2022, up from four regulatory sandboxes in 2019. Some of the leading examples are: (Sources 4 &5)

  • Abu Dhabi Global Market (ADGM) RegLab, the first regulatory sandbox in the MENA region, launched in November 2016.
  • Dubai Financial Services Authority (DFSA) Innovation Testing Licence, launched in May 2017.
  • Central Bank of Bahrain (CBB) Regulatory Sandbox, launched in June 2017.
  • Saudi Central Bank (SAMA) Regulatory Sandbox, launched in February 2018.
  • Central Bank of Kuwait (CBK) Regulatory Sandbox Framework, launched in June 2018.

 

These regulatory sandboxes provide a conducive environment for tokenization of real-world assets, as they allow fintechs to test and validate their solutions while complying with the regional laws and regulations.

Tokenization of real-world assets in the Middle East can bring various benefits to the region, such as:

  • Increasing the liquidity and value of assets, by enabling fractionalization, trading, and valuation of assets that are otherwise illiquid, costly, or difficult to trade.
  • Reducing the transaction costs and risks, by eliminating or minimizing the need for intermediaries, paperwork, verification, and settlement of transactions, and by enhancing the security and transparency of transactions.
  • Broadening the access and inclusion of assets, by lowering the entry barriers, increasing the affordability, and expanding the market of assets, especially for underserved or unbanked populations.
  • Fostering the innovation and diversification of assets, by creating new forms of assets, products, services, and business models, and by enabling new sources of funding, investment, and revenue.

 

Real estate is a highly valuable asset class that is in high demand all over the world, especially in the Middle East. It contributes significantly to the GDP and wealth of many countries in this region. However, investing in real estate can be challenging due to high entry barriers, transaction costs, intermediaries, and regulatory hurdles. In fact, the oversupply of real estate has been a persistent issue in Qatar, as reported by Source 6.

Tokenization is a solution that can overcome these challenges by allowing for fractional ownership, increased liquidity, and global access to real estate assets. Tokenization can also create new opportunities for innovation and inclusion, such as crowdfunding, peer-to-peer lending, social impact investing, and affordable housing.

There are already several examples of tokenization of real estate in the Middle East, such as SmartCrowd (https://smartcrowd.ae/), a UAE-based platform that allows investors to buy fractional shares of properties (Source 7), or 10 Leaves (https://10leaves.ae/), a consultancy firm that helps clients to tokenize their real estate assets in the UAE (Source 8).

Commodities are a significant and profitable asset class in the Middle East, owing to the region’s abundance of natural resources, including oil, gas, gold, and metals. However, the prices of commodities can be subject to volatility, speculation, manipulation, and geopolitical risks, which can impact their availability and price.

Tokenization can address these concerns by creating a more transparent, efficient, and secure market for commodities. Tokenization of commodities can also enable new forms of trading and investment, such as futures, options, swaps, and exchange-traded funds (ETFs).

The Middle East region has already seen some examples of tokenization of commodities, such as DMCC, a Dubai-based free zone that launched a gold-backed token. This has led to a projected Compound Annual Growth rate of 16.8 percent through 2029 for the tokenization market in the MENA region. (Source 10)

Blade Labs is a trustworthy partner for businesses and enterprises in the Middle East looking for customized tokenization solutions. We have the necessary expertise, experience, and technology to cater to the diverse and dynamic needs of this region.

Our focus is on cutting-edge infrastructure for tokenization of RWA (Real World Assets), covering design, minting, and distribution through our wallet infrastructure solutions. We offer a tailored front-end experience specifically designed for enterprises and businesses. Our exclusive solutions are customizable, and we can integrate KYC/AML, custody, and other features into the user journey. Additionally, we offer one-click distribution and efficient token management.

At Blade, we have a proven record of delivering innovative and secure go-to-market solutions for tokenizing precious metals like diamonds, which was a global first. We have also partnered with Deca4, a specialized blockchain consultancy studio based in the UAE, to deliver our cutting-edge white label technology solutions to Sphera World (https://spheraworld.com/) and help them raise the bar for user engagement in the global Kooora community.

We are proud to be among the leading pioneers in this digital transformation, providing end-to-end solutions that can enable the next billion users to transition safely and seamlessly between Web2 and Web3. Our commitment is to provide users with simple, seamless, and secure access to Web3 activities and commerce, empowering the tokenization market stakeholders in the Middle East.

 

Kasturi Sharma
Senior Content Writer
Blade Labs

 

Source list

  1. https://www.weforum.org/agenda/2021/03/digital-tokens-could-transform-the-economies-of-the-middle-east-and-north-africa/
  2. https://www.ledgerinsights.com/tokenization-addx-middle-east/
  3. https://www.ledgerinsights.com/tokenized-bonds-hsbc-orion-listed-on-adx/
  4. https://thefintechtimes.com/an-overview-of-regulatory-sandboxes-in-the-middle-east-and-africa-region/
  5. https://fintechnews.ae/14142/bahrain/report-details-11-fintech-regulatory-sandboxes-in-mena-in-2022/
  6. https://www.arabianbusiness.com/industries/real-estate/qatar-real-estate-residential-prices-increase-as-demand-falls-office-sector-oversupply-and-changing-retail-habits
  7. https://smartcrowd.ae/blog/market-trends/5-game-changing-benefits-of-blockchain-in-real-estate/
  8. https://10leaves.ae/publications/blockchain-crypto/tokenised-real-estate-crowdfunding-platform-in-the-difc
  9. https://dmcc.ae/latest-news/dmcc-digitises-gold-trading-through-tokenisation-comtech-gold-bullion-backed-dmccs-tradeflow-platform
  10. https://economymiddleeast.com/news/economy-middle-east-guide-what-is-tokenization/

 

 

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