But after all, can we say that backed tokens are the fixed income of cryptocurrencies? What are the advantages of investing in tokenized assets that we don’t find in traditional fixed income products?
What are Backed Tokens?
Backed tokens are digital representations of real assets, i.e. real-world goods, rights or financial products.
Thus, copyrights, court orders, consortia and even football players are transformed into digital assets through registration in a Blockchain network , the same technology that allows the registration of cryptocurrency transactions.
Because of this transformation, it is much easier and more practical to invest in assets that can generate high-yield, low-risk fixed income. Understand why:
How backed tokens work
The process of transforming a real asset into a digital asset is called tokenization. This process is done through programming code on a Blockchain, known as a smart contract .
These contracts automatically execute transactions, without depending on human action and the intermediation of a company, financial institution or government.
When created, each token represents part or all of the real asset, as a kind of digital certificate.
This means that smaller parts of that asset can be distributed to different people in small shares, for a much lower initial cost than we find in the traditional system , in which investors have to pay for the entire asset.
In this way, in addition to removing intermediaries and bureaucracies from the traditional financial system, asset tokenization also facilitates access by small investors to financial products that were previously available only to larger investors.
Examples of backed tokens
Below are two examples of backed tokens that work as a low-risk, high-return investment alternative:
Precatórios are public debt securities issued by the Judiciary, which individuals or legal entities have to receive from municipal, state or federal public bodies.
In this type of investment, the payment of this debt is anticipated to the collector, who accepts to receive less because it is being paid before the end of the legal procedures, which can take up to years.
Thus, the profitability of those who invest in precatories is given by the difference between the anticipated amount and the amount received when the judicial payment is made, which includes interest and monetary correction.
The precatory token is a digital representation of debt security, which can be divided into smaller shares and distributed to different people for a more affordable value. Yields are paid in fixed terms, which can be 24, 36 or even 48 months.
Music royalty tokens
Music royalties are the amounts paid to the copyright holder of a musical work whenever that music is reproduced, whether in public performances, streaming services, shows, movies, soap operas, commercials or through the purchase of CDs.
The ECAD is the body responsible for collecting and distributing these amounts to the rights holders, always at fixed periods, which can be monthly or quarterly, according to the distribution calendar.
Music royalty tokens are the digital representation of a portion of the receivables from the copyright on a song. Therefore, it is a way of investing in these rights and starting to receive fixed income with the payment of royalties.
Are Backed Tokens the Fixed Income of Cryptocurrencies?
As we have just seen, a backed token is the digital representation of a real-world asset or right, which can be, among other things, a fixed income product.
Therefore, a token backed by a fixed-income asset is actually a digital representation of fixed-income, as it reflects the same conditions as the real asset it is representing, including the frequency with which profits are paid to investors.
For example, if you invest in music royalty tokens on Coinext, you will receive profitability in the same fixed period that royalties are paid to the copyright holders of the songs that make up the catalog of that investment.
In this way, when you buy a music royalty token for just R$100, you start to receive passive income in your account on a monthly basis, as the backed token represents a part of the receivables from the copyright on that song.
Both the frequency of payments and the current term of the transaction are described in the product conditions , which you can and should carefully check before purchasing the token.
Differentials of Backed Tokens
The great advantage of backed tokens in relation to traditional products is to allow portfolio diversification with low-risk, high-yield investments at a more affordable initial cost and in a much more practical way.
This is all thanks to the advancement of Blockchain, which allowed the democratization of fixed income investments that demonstrate high performance and also enabled the emergence of new alternative ways of investing.
Advantages of investing in backed tokens
In general, we can highlight the following advantages related to investing in backed tokens:
- Greater accessibility to low-risk, high-performance investments.
- More possibilities for diversifying the investment portfolio.
- Practicality of investing in a digital and less bureaucratic way.
- Security and transparency are promoted by public Blockchains.
Furthermore, depending on the asset represented by the token, investors have even more advantages.
In the case of music royalty tokens, for example, there is the positive point of being able to diversify the portfolio with an investment uncorrelated to the stock exchange.
A highlight of the investment in precatory tokens is the possibility of equity appreciation, as the token is monetarily corrected and plus interest at the SELIC rate, which in the long term tends to compensate for variations in inflation and remunerate capital.
Risks of investing in backed tokens
The risks of investing in backed tokens will be the same as the assets it represents.
That is, if you invest in precatory tokens, your investment will be subject to the risks characteristic of the predators themselves, such as the delay in paying the debt by the government and change in the way of calculating the value of the precatory.
Investing in music royalty tokens includes the risk of investing in music copyrights. Among them are the risk of the song not being successful and being little reproduced and the issue of piracy, which can affect the gains of the holders of the right to the work.
In addition, as backed tokens are also digital assets, there is still the typical volatility of crypto-assets, which causes their price to change according to market supply and demand and may affect the token’s value in the secondary market in the future.