It has been stated on many occasions that real development within the digital asset sector occurs amidst down markets. During periods like the current one being experienced, developers are hard at work creating the next big thing that will usher in another round of optimism and bullish sentiment for the future. The past bull market was fueled by speculation around NFTs and Memecoins. While the former has legitimate use cases, the latter is not exactly a game-changing niche expected to have any lasting effect.
So what exactly will this optimism look like moving forward? Perhaps it will surround the proliferation of stablecoins. Or could it be insurance policies?
Two companies (Boston Consulting Group, and ADDX) recently looked to answer this question, and came to the conclusion that the answer is none other than “asset-tokenization”. Their findings were shared in a report titled “Relevance of on-chain asset tokenization in ‘crypto winter'“.
By and large, the aforementioned report is referring to digital securities, or “security tokens“, when discussing asset tokenization. These are typically either real world assets (real estate, art, etc.), or shares in a company that have had tokens created representing ownership in the associated product.
By looking at the potential of this increasingly popular implementation of blockchain technology, along with various market needs/events/requirements, BCG and ADDX are able to draw some financially tantalizing conclusions that will see a 50-fold increase by 2030.
In the joint report, various benefits on offer through asset tokenization are listed. The primary one being a reduced investment size. While this may seem trivial at first, lowering the threshold at which investors can gain exposure to an asset brings multiple benefits for all parties involved.
- democratize investing by providing opportunities to a larger pool of investors
- Increased liquidity due to larger investor pool
- Easier access to funding for token issuers
While often still true, the old adage “you need money, to make money” should hold less weight in the coming years. Benefits go beyond getting more investors involved though. As a result of the very nature of blockchain, tokenized assets have the potential to not only be more transparent than their more traditional counterparts, but also more affordable, efficient, and boasting the ability to be transacted with ease on a global scale.
Hurdles to Be Cleared
While the list of benefits that asset tokenization can bring is game-changing, it is important to not get ahead of oneself. Various hurdles remain before the future that BCG and ADDX envision can come to pass.
These hurdles begin, and end, with regulation. As stated, asset tokenization typically refers to digital securities. As such, these assets are regulated in a stringent manner, striving to ensure fair markets for all. What makes the situation particularly difficult though is the global scale of asset tokenization. Each nation takes its own approach to regulation; how can asset tokenization work in a sector full of varying standards/requirements?
Other notable issues which should be addressed organically over time are public awareness and adoption. First investors will need to become educated on what asset tokenization is, and what it can offer them. Then investors need to be swayed away from current tried-and-true methods. Providing regulations are sorted, these last issues should slowly fade over time.
Having addressed both the benefits of asset tokenization, and hurdles which must first be cleared before the sector takes off, the report takes the time to highlight 5 current-day instances of the, “proliferation of on-chain asset tokenization”.
- Sharp growth outlook in digital asset trading
- Stronger stakeholder sentiment and successful pilots across countries
- Recognition or on-chain tokenization by monetary authorities
- More asset classes are being tokenized
- Growing and resilient talent pool
While asset tokenization has not had its moment in the sun yet like NFTs and memecoins, the sector is arguably poised for a much brighter future – one fueled by actual functionality, rather than pure speculation. The above list shows that the necessary infrastructure and slow-moving development needed to support such a future is well underway.
By the Numbers
With all that being said, what does the potential of asset tokenization mean from a financial perspective? Unsurprisingly, the numbers are staggering, with BCG and ADDX forecasting the following.
“asset tokenization will expand into a US$16.1 trillion business opportunity by 2030”
“tokenized assets are expected to make up 10% of global GDP by the end of the decade”
Much of this is based upon the ability to bring liquidity to asset classes typically viewed as illiquid. The report references past studies which highlight 50% of investable assets are currently held in “illiquid formats” – a statistic which asset tokenization has the ability to upend. Essentially, once regulations are sorted, and the snowball begins rolling in earnest, expect for it to culminate in an avalanche that changes the current landscape for investing.
Laying a Foundation
So who are the companies leading the way, laying the tracks that will allow for the future envisioned in this report to become a reality? While there is no way to list all of those putting forth meaningful contributions (SPiCE VC, Polymesh, etc.), the following are a two of the more noteworthy names within the sector.
This Digital Securities exchange has been operating since 2017, and is regulated by the Monetary Authority of Singapre (MAS). The exchange notes that to date it has already tokenized over 40 deals on its platform, representing participation from hedge funds, private equity, real estate, debt products, and more.
Notably, ADDX offers a comprehensive suite of services which see it function as more than just a tokenization platform. It also acts as a custodian, and facilitates both primary and secondary markets.
While ADDX may be the largest exchange of its kind in Asia, within North America Securitize is its most noteworthy counterpart. Also founded in 2017, Securitize has managed to tokenize in excess of 115 assets on a variety of blockchains (Ethereum, Algorand, Avalanche).
As a whole, Securitize and its various subsidiaries boast registrations with the SEC as a transfer agent, and as a broker-dealer.