A Guide to Digital Asset Trading

In a world where everything is going digital, it's no surprise that digital assets are becoming mainstream. Retail and institutional investors alike are already harnessing the potential for digital assets to revolutionise traditional finance, with practices such as tokenization. Digital assets present novel investment opportunities as well as innovative stores of value and mediums of exchange.

But what are digital assets, and why are they so important? In this article, we will guide you through what digital assets are, their various types, and why they’re important.

What Is Digital Asset Trading?

Digital assets are anything created and stored virtually, which are perceived to have value. Powered by blockchain technology, digital assets include cryptocurrencies, non-fungible tokens (NFTs), asset-backed tokens such as stablecoin Tether and tokenized real estate. Digital asset trading refers to the buying, selling, and swapping of these virtual assets.

How Does Digital Asset Trading Work?

Digital asset trading is supported through brokerages and exchanges that allow you to buy, sell or swap assets of your choice. To start trading, you’ll need to open an account with a brokerage or centralised exchange, and depending on the platform, this could be through an app, online marketplace or both.

Individuals are also able to create a crypto wallet with providers such as Metamask,Trust Wallet and Exodus to trade on decentralised exchanges such as Uniswap.

Digital assets can be stored in an online digital wallet, through which assets can be accessed and traded within seconds. However, many investors choose to store their digital assets offline in hardware wallets, given their increased security.

Importance of Digital Assets

Digital asset investments are increasingly gaining a foothold in the finance world. In 2024, the global digital asset ecosystem reached a valuation in excess of $2.8billion, which is higher than the GDP values of France, Russia & Canada. Here are some of the main reasons digital assets are considered important:

• Transaction Transparency: Every transaction on a blockchain, whether it’s the creation or exchange of a digital asset, is recorded on a digital ledger that is publicly accessible. This promotes transparency and makes it easy to track transactions, verify ownership, or establish an audit trail, which is advantageous in creating a fair and open system.

• Decentralised Finance (DeFi): In centralised finance, your money is held by banks and third-party vendors that act as intermediaries in financial transactions. Each intermediary charges a fee to facilitate transactions between parties.

  In DeFi, the need for self-interested intermediaries is eliminated; digital assets can instead be transferred between parties, directly, through smart contracts. DeFi minimises transaction fees and charges that would otherwise be paid to intermediaries running a centralised financial system.

• CeFi Actors: In crypto, centralised finance (CeFi) refers to intermediaries that engage in the traditional centralised finance system, including crypto brokerages and centralised exchanges. They offer an entry point into crypto and digital asset trading. For example, Caleb & Brown supports users to buy, sell, swap and store digital assets through its brokerage. By offering such services, CeFi actors bridge the gap between traditional finance and digital asset trading.

• Exchanges: Exchanges provide a platform through which digital assets are traded. They act as marketplaces for buyers and sellers of digital assets to connect and trade. Exchanges charge commissions, and other fees, for each transaction and activity executed on their platforms.

• Asset Tokenisation: Asset tokenisation refers to the creation of digital tokens that represent ownership rights of assets, including property, stocks, bonds, or commodities. The tokenisation enables the purchase of conventional assets in smaller fractions. This lowers the investment’s minimum entry requirements, which is good news for smaller players, and opens up the investment to more potential capital as a result. For example, Ondo Finance tokenizes US government debt & debt securities, democratising investment in the assets for smaller buyers and non-US investors.

Examples of Digital Assets To Trade

If you are looking for digital assets to trade, here are some options to consider.

Cryptocurrency

Cryptocurrencies act as virtual currencies in which transactions are recorded on the blockchain. Blockchains are secured by cryptographic algorithms that require solving complex math problems. The value of a cryptocurrency is determined by the market participants who trade in the asset, also known as supply and demand. Out of the many types of crypto, the most-traded coins are usually Bitcoin and Ethereum, which also hold the biggest market caps.

Stablecoins

Stablecoins are cryptocurrencies designed for price stability. As the name implies, they are meant to hold a stable value, relative to another asset or financial instrument they are linked to, such as fiat currencies like the US Dollar, or commodities such as gold.

NFTs

Non-fungible tokens (NFTs) are digital assets used to represent ownership of items like art, collectibles, tickets, real estate, or even units in a fund. Each NFT is unique and irreplaceable, and you can authenticate ownership of an NFT as a result. This presents a very broad use case for NFTs.

Asset-Backed Tokens

Asset-backed tokens are tokens pegged to other assets, such as gold, equities, or oil. The tokens allow the fractionalisation of assets into smaller units, which makes it affordable for retail investors to own a piece of an expensive or illiquid asset. The value of asset-backed tokens is determined by the value of the underlying asset.

Commercial Real Estate Tokens

Among digital asset examples, commercial real estate tokens are asset-backed tokens. These digital assets convert real estate's value and ownership rights into tokens, making it possible to trade real estate in fractional (smaller) units. RealT is a platform providing such a product.

CBDCs

Central bank digital currencies (CBDCs) are a type of digital asset that represents a nation’s fiat currency and is backed by its central bank. CBDCs are digital forms of fiat currencies. They could be used for cross-border transfers or for conversion into fiat money or cryptocurrencies. Despite being a bone of contention in the crypto space, various central banks have endorsed the concept, including Australia.

Understanding Digital Asset Trading Through Blockchain Technology

A blockchain is a distributed ledger that allows and records the creation, storage, and transfer of digital assets without an intermediary. Transactions of digital assets are validated by participants in the blockchain who must agree on the validity of transactions to confirm them. This enables a secure, decentralised and trusted network, which reduces risk and cost to all players involved.

Explore Investment Opportunities Through Digital Assets

Blockchain technology has prompted a powerful shift in the way investors think about owning and trading physical and virtual assets. The rise of digital assets completely redefines notions of value and ownership. Through blockchain technology, digital asset trading has opened opportunities for investors to participate in a larger transparent and decentralised financial system.

FAQs

Q: How do digital assets make money?

A: Digital assets can see investors make profits when asset values increase or by generating income (e.g. through staking, which offers rewards). The value of digital assets backed by another asset could depend on that underlying asset. For example, if the value of gold increases, the value of a gold-backed token should also increase.

Q: How does a digital asset exchange work?

A digital asset exchange provides a platform through which digital assets can be bought, sold, swapped, borrowed, or loaned through a peer-to-peer network. By providing a platform, the exchange acts as an intermediary to the trading parties.

Q: Is Bitcoin a digital asset?

A: Yes, Bitcoin is a cryptocurrency that is also a digital asset.