Tokenization of real-world assets on the blockchain is rapidly gaining momentum, offering benefits such as transaction speed, liquidity, cost-savings, and round-the-clock access, with experts predicting it to become a $16 trillion industry by 2030. Over 70% of financial leaders expect to use tokenization in their businesses, with potential impacts on asset trading, real estate transactions, derivatives, and carbon markets. Tokenization unlocks liquidity, enhances security and data protection, reduces transaction costs, and enables programmability and automation, making it a key driver of digital asset adoption and a fundamental shift in business operations.
Tokenization has the potential to improve efficiency, liquidity, and transparency in bond markets, according to a report by the Hong Kong Monetary Authority (HKMA), following a successful $100 million tokenized green bond issuance in collaboration with the local government.
The demand for illiquid assets is increasing as investors seek higher returns, with tokenization playing a role in enabling this shift, according to experts at a recent event, while surveys indicate that younger generations have a desire for more investment choices. Tokenization is seen as a way to democratize access to investment opportunities by lowering costs and allowing for fractional ownership, which can expand the investor base and generate greater liquidity. Additionally, Generation Z is driving the demand for tokenization and expects more personalized investment options.
The Tokenized Asset Coalition, consisting of industry leaders such as Coinbase and Circle, aims to promote the tokenization of traditional financial assets on a blockchain to bring the "next trillion dollars of assets" on-chain through education, advocacy, and fostering adoption of public blockchains and decentralized finance.
Tokenization of real-world assets has the potential to become a $16 trillion industry, providing solutions to issues such as financial inclusion and agricultural insurance in developing countries, according to industry experts at Swiss Web3 Fest.
The appetite for tokenizing real-world assets on blockchains is growing, with both financial incumbents and crypto native players getting involved, and smaller participants such as retail users and businesses are now able to access these assets for remittances, savings, and payments.
The Federal Reserve has released a paper discussing the benefits of tokenizing real-world assets on blockchains, stating that it has the potential to provide access to otherwise inaccessible markets and improve liquidity.
Despite the prevalence of private blockchains in the banking sector, the co-founder of Chainlink predicts that public blockchain protocols will ultimately become the biggest market for banks' tokenized real-world assets, as they offer diversified collateral and attractive yields. However, financial institutions in the US may proceed with caution due to regulatory uncertainty. On the other hand, European and Asian banks are progressing in this area, with companies such as Citi and JPMorgan exploring tokenization on public blockchains like Ethereum. Franklin Templeton has also embraced public blockchains, recognizing their cost efficiency and rate of innovation. Interoperability and cross-border liquidity are key considerations for banks as they adopt tokenization and explore ways to move assets across chains.
Blockchain technology is breathing new life into traditional assets as big finance firms invest in token trading and investment platforms, with more than a third of institutional investors in the U.S. and almost two-thirds of high-net-worth investors planning to invest in tokenized assets this year or next.
Tokenization, the process of linking assets to crypto tokens on a blockchain, is gaining prominence and attracting attention from regulators and financial firms as it offers investors access to previously inaccessible markets, improved liquidity, and greater efficiency, although it also introduces potential financial stability concerns and risks of transmitting shocks between crypto and traditional financial markets.
Australia's central bank is exploring the potential of tokenised money and the launch of a central bank digital currency, which could save billions of dollars in costs in domestic financial markets and bring increased liquidity and transaction savings to issuers in capital markets.
