Securitization is a process by which Banking or alternative charge players categorize Asset-backed non-performing loans into three categories(AAA, BBB, CCC) and sort them based on their performance history. After sorted these asset-backed loans are up for sale to a third party named SPV. These third parties will pool these unsettled asset-backed loans and categorize them according to their potential value in the secondary market. This manner borrowers may offload their highly illiquid assets into liquid ones, and minimise the creditrisk.
Challenges in securitization Securitization could be a very cumbersome Cryptocurrency Procedure for both lenders and SPVs, as it involves too much sophistication, thus auditing becomes very hefty. And there are not any proper checks and balances which produce the practice of securitization tricky.
Tokenization: a saviour Tokenization is a procedure for converting assets into electronic format by assigning every strength a token. The process makes it possible for the owner of the asset to have several ownerships, this not only lowers the risk attached to a certain advantage but also maximizes its own liquidity on the market.
Business-related rules and procedures can also be categorized and attached to some Token with its inherent processes. This maximises the speed of the trade. This way transfer of possession also gets easier with encoded tokens and dependable information connected to them.
Regulation using tokenisation
Following regulatory steps also get easier with tokenisation coming To the play, as"know your customer" and other regulatory compliances can also be encoded to the tokens.
Utilization of Corda to tokenise an asset
Corda is a program which allows arrangements between holder and issuer of token. Corda supports two different types of token first being asset-backed tokens and the other one is assets which are directlyissued by engaging parties.
The use of securitization using tokenisation gives a security framework to both Borrowers and lenders.