Envision a world where an individual residing in Barbados can have a $100 stake in a $10 mn property in Dubai, or buy $10 worth of Government bonds in their local currency, all without the need for a financial intermediary. Tokenization has opened up the possibility of virtually any public or private market being represented by digital tokens, including equity, commodities, bonds, art, data, oil, and beyond. In the past, many of these assets were only available to a select few investors and were often traded at a discount compared to more liquid assets that were accessible to a larger market.
A $16tn Market by 2030
The Tokenization of Real World Assets (RWAs) has been a prominent use case for Blockchain technology ever since Ethereum’s smart contract platform gained popularity in 2014. Although the past decade saw many challenges in tokenizing RWAs – including regulatory hurdles and the need for sustainable technical and operational infrastructure – the market has since evolved to tackle these issues. Since this, we have witnessed a boom in the tokenized market covering a wide range of assets. In fact, the World Economic Forum’s Global Agenda Council, as well as BCG Analysis, estimate that the tokenization of illiquid assets on a global scale could potentially reach an astonishing $16tn by 2030.
Source: World Economic Forum – Global Agenda Council, BCG Analysis 1, For example, Insurance policies, Pensions, Alternative Investments; 2 e.g., Infrastructure Projects, Car Fleets, Patents Note: The analysis does not include crypto assets.
How Three Banks and Two Countries Leveraged Tokenized Assets & DeFi
November 2022 saw a pivotal moment for tokenization on a global scale with the announcement of the first industry pilot by the Monetary Authority of Singapore (MAS). The pilot was designed to simulate the buying and selling of tokenized Government bonds in a Decentralised environment and was carried out by DBS Bank, JP Morgan, and SBI Digital Assets Holding. The team used liquidity pools consisting of four tokenized assets: Singapore Government Securities Bonds, Japanese Government Bonds, Japanese Yen (JPY), and Singapore Dollar (SGD). This marked the first-ever live cross-currency transaction using tokenized forms of these assets, and was celebrated as a major achievement for the parties involved as well as the broader Blockchain community. Since then, additional pilots have been launched, pointing towards the promising future of tokenization not only on a retail level, but also at a federal level.
What’s Next?
Investors have begun to deploy significant capital in infrastructure that is intended to power the growth of the tokenized world, attracting numerous innovators eager to tap into its estimated $16tn market. While end users will likely see a more abstracted technical process, the bulk of the value can be found at the infrastructure level, as with most things. Governments, institutions, and corporations worldwide are expected to launch more platforms, services and experiments, marking the dawn of the tokenization era.
Similarly to the internet in the early 2000s, it all seemed intimidating — but we inevitably evolved and it has since become an integral part of our existence. This is no different. The advent of tokenization is poised to disrupt industries and unlock new markets.