Counosplatform

Jun 25, 2021

4 min read

Securitization Explained

What is securitization? In very simple terms, securitization refers to the process in which an asset is transformed into a security.

The asset at hand is not liquid, which is referred to as an illiquid asset.

In other words, when this process takes place, a marketable instrument is created for an asset that has been otherwise not marketable or fungible, which in turn, improves upon the illiquid asset by promoting its liquidity.

So the basic idea behind this process is to make an asset ready for the market. As such, in essence, any financial asset can be turned into an asset that is tradable and ready to be entered into the market.

Counos Platform, the Swiss Blockchain company, offers securitization services as well. This service specifically caters to making digital assets of any form into fungible and bankable assets with the help of Swiss ISIN, attorneys, and brokers.

But, as you may be able to assume, digital assets are not all that can be securitized.

What Is It Used For?

Due to the nature of securitization, this process can be used for any asset that does not have real market value. This means, any financial asset that is not fungible or bankable.

Then such an asset is taken through this process, which makes it tradable.

But what assets can be securitized? Essentially, any asset can be the target of this process. But in terms of the assets in the crypto market that can be securitized, we can refer to any product created with the help of the Blockchain technology that cannot be part of the market, conventional or otherwise.

For instance, a token, digital currency, or any other Blockchain-based product that is not part of the conventional market, exchange, and other financial venues can be securitized.

Through this process, the illiquid asset becomes tradable at various exchanges, or even listed on conventional and well-known stock market. This is done so in order to give the asset validity and credit.

The Role of ISIN in Securitization

As was mentioned above, one of the ways an asset could be securitized is to give it an official underpinning. What better way to do that than using the Swiss ISIN system.

But what exactly is an ISIN number? The International Securities Identification Numbering System is defined as an international standard by which the market identifies an asset as part of the International Organization for Standardization.

In simple terms, if an asset is listed by this system and gains an ISIN number, it becomes part of an official financial venue, making the asses completely legitimate and tradable. This is how an asset sheds its unofficial early stages and becomes an officially accepted financial instrument.

How is ISIN used for securitization? Not a lot of companies and platforms offer this type of service. But, as was already mentioned, Counos does in fact offer this specific type of securitization.

In essence, since the ISIN and the entire system behind it represent stocks, bonds, options, and futures, the way this type of securitization works is to tie a digital asset to an official ISIN number.

In this way, an asset which was not tradable or official in any way, becomes bankable and fungible.

Advantages of Securitization

The most important thing you need to keep in mind if you want to know about the advantages of this process is that the application is not limited to currencies.

Recently, securitizing tokens, cryptocurrencies, and other digital assets has gained a lot of traction. The reason behind this move is that such currencies are nothing like the previous forms of currencies, known as fiat money or any other traditional currencies. These conventional currencies have been tied to one form or another financial support, giving them their official and bankable vehicle.

But in the case of digital currencies, since they are entirely based on decentralized infrastructure, where no one is in control, they are by and large considered illiquid assets when they first come to fore. As such, this type of service is becoming more and more applicable for them.

However, the application of securitization is not limited to such currencies. This process can be used for ANY type of financial asset, no matter what form.

For instance, an entire project or company can become securitized. Of course, due to the rise of Blockchain, this specific type of use is gaining more traction as well.

Conclusion

The process of securitization is used to make assets bankable and fungible. In other words, it means making assets real in terms of financial value.

Of course, some financial assets are not fully official; for instance, they are not listed on exchanges and stock markets, and as such they cannot be traded by users.

But this process can give legitimacy to illiquid assets that have not entered the market officially and in terms of real financial value.

Originally published at https://www.counos.io.