Tokenized assets are an innovation whose time has arrived. Back in 1997, chess grandmaster Garry Kasparov took one look at something that made him doubt his understanding of human intelligence. He faced a move that no human in history had ever faced against IBM’s Deep Blue. Deep Blue broke every chess ‘best practice’ invented during the last 500 years—not because it was brilliant, but because no human could match it. The brute force exploration of all possibilities helped it break free from chess’s best practices.
The emergence of Decentralized Finance (DeFi) follows a similar path. It has been arguably one of the biggest changes in the financial industry. Financial inclusion is now within reach for both individuals and institutions. DeFi has come a long way, but its user base is a tiny fraction of the world’s population. That suggests the vast potential yet to be realized.
To fully unlock the power of DeFi, we must bridge the chasm between the traditional financial system and the decentralized world. This will enable DeFi to tap into the vast $16.1 trillion market of traditional assets, representing a staggering 50,000% growth opportunity.
Why Tokenized Assets?
Real World Assets are those physical or tangible assets which only exist in the material world. They include:
-
- Real estate — Properties, land, buildings
-
- Commodities — Gold, oil, natural gas
-
- Collectibles — Artwork, antiques, trading cards
-
- Equity — Shares in private companies
-
- Debt — Loans, mortgages, bonds
-
- Infrastructure — Bridges, roads, utilities
Historically, these assets have needed to be more balanced and difficult to trade or fractionalize effectively. Tokenization represents real-world assets in the blockchain utilizing digital tokens that serve as proxies for ownership and value. Every token represents a portion of the underlying asset’s ownership.
Tokenization offers a diverse range of possibilities for real-world assets. These consist of:
Asset-Backed Tokens: These tokens represent direct ownership of an underlying asset, giving holders verifiable certificates of authenticity.
Security Tokens: Adhering to stringent securities regulations, these tokens offer ownership rights and dividends akin to traditional securities.
Utility Tokens: These tokens grant access to specific products or services related to the underlying asset and unlock exclusive benefits.
Fractional NFTs: By dividing assets into fractional ownership shares, NFTs democratize access to high-value assets, empowering a broader range of investors.
The Transformative Impact of Tokenization
At the moment, an interplay of factors creates an ideal foundation for a wider adoption of tokenization. On the one hand, regulators are taking the proactive step and issuing policies that create the standards for the space to operate. In the same vein, major players are coming into the tokenization space, along with their trust, reputation, credibility, and expertise, and expanding the ecosystem. This development has opened new markets and created a larger and more diverse tokenization ecosystem.
Nonetheless, trusted names like Blackrock, Goldman Sachs, and Templeton are some giants making inroads in the tokenization space. With a broad customer and investor base, their involvement naturally fosters a deeper sense of trust. It also encourages wider participation as attention follows them. The trust gained over the years of excellent service brings the attention of the retail markets and the general public. As such, we are witnessing the ripple effects of increased confidence in the financial sector.
In addition, trusted financial entities like Blackrock, Templeton, Goldman Sachs, ABN Amro, and Bancolombia are making significant moves in the tokenization space. Their involvement fosters a deeper trust among investors and retail customers, encouraging broader participation in tokenized assets. As these globally regulated institutions continue to embrace tokenization, we see increased confidence throughout the financial sector.
Tokenized Money and Stablecoins
Stablecoins and other tokenized money are becoming more popular, especially in areas where strict capital restrictions and currency instability are problems. Stablecoins are appealing because they provide stability in erratic markets. This way they foster improved controls via smart contracts, and clearing and settlement around the clock.
With stablecoin circulation predicted to reach a staggering $1.1 trillion by 2030, tokenized money is set to play a major role in the future of finance. CloudTech has leveraged the Fireblocks Tokenization Engine to quickly deploy its solution, demonstrating the efficiency and flexibility of modern tokenization platforms.
Stablecoin circulation is predicted to hit $1,113 billion by 2030. Tokenized money will play a major role in the future of finance. More importantly, CloudTech has demonstrated how to quickly deploy a solution using modern tokenization platforms like the Fireblocks Tokenization Engine.
Tokenized Assets in the Real-World
One of tokenisation’s most exciting areas is its application to real-world assets. By creating tradable on-chain tokens representing shares in assets like real estate, commodities, and art, tokenization is lowering barriers to entry. This development increases liquidity, and offers more opportunities for diversification among retail investors.
Moreover, the tokenized alternative assets market includes real estate, carbon credits, art, commodities, and metals. It is expected to be worth $200 billion by 2030, demonstrating the immense potential in this field.
The Road Ahead
The key insight is that we’re moving from a world where tokenization is a technical novelty into one where it is a revolutionary force in financial markets. We’re seeing more institutional engagement, which lends credence to the ecosystem.
With a strong focus on regulatory compliance, it paves the door for general adoption. It also brings a concentration on developing new value propositions rather than merely digitizing current operations.
