Asset tokenization is experiencing unprecedented growth these days and could become a killer use case for blockchain technology, driving its advancement and global adoption.
The process of converting rights over financial or real-world assets into digital tokens, which can be stored, transferred and traded on a blockchain platform, has gained new momentum in recent years and is emerging as a fundamental pillar in the world's innovation. financial.
Tokenization is acquiring a global position, as it emerges as a trend of great relevance among companies and technology fans, due to the multiple advantages it offers for issuers, investors, and even regulators. Among them are gains in efficiency, greater liquidity and capital efficiency, reduction in issuance and intermediation costs, transparency, distribution, traceability and financial inclusion.
“We believe we are approaching a tipping point, where the promised potential of blockchain will be realized and measured in billions of users and trillions of dollars in value,” Citi wrote in its report. "Money, Tokens, and Games", published in March.
In this report, Citi strategists estimate that the asset tokenization market could reach up to $4 trillion by 2030, spanning sectors such as gaming, art, real estate, stocks, private equity and commodities.
In this article, we discuss the main features, advantages and challenges of tokenization, as well as the opportunities it offers to drive the next wave of innovation in the finance sector.
The main features of tokenization
Tokenization is a process that allows digital representations of an asset to be created within the blockchain. This procedure houses a variety of characteristics that enable the fractionability of assets, which facilitates their accessibility.
Likewise, tokenization also reduces the costs and intermediaries associated with traditional transactions, by taking advantage of the multiple advantages of blockchain technology, such as security, transparency and traceability.
Through the asset tokenization process, the doors are opened to new possibilities for innovation and value creation, which facilitate the development of new business models, products and services based on the blockchain.
The global investment asset manager franklin templeton, the private markets investment company Hamilton Lane, the digital asset bank Bank signature, the South Korean financial group Mirae Asset Securities, the technology company of German origin Siemens, the real estate market Co-Fund, the debt securities protocol Force yourself and the World Bank are some of the entities that are currently exploring the potential of asset tokenization.
Even Depository Trust & Clearing Corp. (DTCC), the leading clearinghouse in the United States, announced this month the acquisition of the firm Securrency to explore new digital asset capabilities, including tokenization.
In this regard, Securrency CEO Nadine Chakar expressed her enthusiasm for combining DTCC's digital capabilities with Securrency's technology to “embrace a future where the digitalization of capital markets is at the forefront of innovation.” . According to Chakar, the combination of both will unlock the power of DeFi at the institutional level.
What advantages does asset tokenization offer?
The advantages and benefits of tokenization are multiple and varied, as 21.co points out in its report “The State of Tokenization”, published in October of this year.
Some of the most notable advantages of tokenization are increased liquidity, transparency, and efficiency.
By facilitating the fractionation of assets, tokenization allows access to a greater number of investors, which increases trading volume. On the other hand, tokenization allows all operations to be recorded in a blockchain, whether public or private, guaranteeing traceability and security and facilitating the verification of information.
Likewise, thanks to the properties of blockchain technology, tokenization makes it possible to eliminate intermediaries and automate processes, through smart contracts that speed up the execution and compliance with the agreed conditions. All this also contributes to reducing costs.
Source: 21.co
Recently, Reserve Bank of Australia Deputy Governor Brad Jones highlighted that tokenization on the blockchain could Save up to $2.500 billion annually in capital markets costs of Australia and another $8.000 billion in reduced capital costs, according to a report by Ledger Insights.
On the other hand, asset tokenization also encourages greater financial inclusion and contributes to market diversification, by democratizing access to assets that have traditionally been reserved for a small group of wealthy or institutional investors.
In the blockchain world, tokenization also allows unlocking the primitives of the DeFi world, making it possible for users to borrow against assets unheard of in the traditional world, such as pokemon cards, according to Polygon Labs.
However, as with any other innovation, not everything is advantageous, and tokenization of assets also involves certain current risks and challenges mentioned below.
What are the main challenges of this innovation?
According to digital asset company 21.co, one of the main challenges facing tokenization is related to regulation, as this process involves the creation of new financial instruments that may not comply with existing laws or may be subject to different rules depending on the country or jurisdiction.
21. co highlights that this could generate a certain degree of uncertainty, which is why it emphasizes the need to establish a regulatory framework that is clear and proportional and that harmonizes with the nature and characteristics of the tokens.
Source: 21.co
On the communication side, the company notes that interoperability and scalability also pose a challenge in tokenization, because issuers may use different platforms and protocols to issue digital assets, which may not be compatible with each other or with the systems. traditional.
However, solutions like Polygon 2.0 They are working to solve this problem, facilitating a network of interconnected chains and an interoperable environment that provides access to unified liquidity that can make institutional tokenization thrive, its developers indicated.
Tokenization gains momentum in the financial sector
For 21.co, although asset tokenization is currently offering multiple advantages, it is still in an early development stage, in which its true potential and opportunities to drive the next wave of innovation have not yet been explored. in the field of finance.
Even so, some of the sectors that are already benefiting from tokenization are the real estate sector, arts and culture and the energy sector, with the issuance of digital certificates and carbon credits, to name a few examples.
In conclusion, 21.co emphasizes that tokenization is an unstoppable trend that opens a world of possibilities to transform the digital economy and generate social value.
On the other hand, Polygon developers maintain a broader vision and aim for a complete revolution in all areas, far beyond the financial sector. According to Polygon Labs, tokenization is not limited to markets or financial institutions, as the underlying technology, blockchain, “can work for any real-world object that can be traded on any market.”
What are the most important blockchains in tokenization?
Currently, the most important blockchain networks for asset tokenization are Ethereum and Tron, which currently own $69.160 million and $45.000 million dollars of all tokenized assets, according to 21.co.
Source: 21.co
The third most important blockchain in the world of tokenization is Solana, which has little more than $ 1.500 million dollars in this market. They follow him Avalanche y Stellar, which occupy fourth and fifth place, respectively.
However, although the network Bitcoin is not listed in the table above, in its report, 21.co highlighted that tokenization could not be possible until the appearance of this blockchain.
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