Sixteen trillion dollars. That’s the forecasted value of real world assets expected to be tokenized by 2030. On-chain analytics show that $3 billion in assets are already tokenized. We already see big firms (BNY Mellon, JP Morgan and BlackRock) tout tokenization projects, recognizing the efficiencies they can bring from a payment and settlement perspective. Still, the more significant potential of tokenized investments is their ability to democratize finance and bring broader investment opportunities to the general population through “fractionalized" investments in global opportunities.
The State of Tokenization: Themes in 2023
Asset tokenization can be summed up by the concept and execution of bringing traditional assets to the blockchain (on-chain) as the next leg of financial product wrappers. As the broader public financial markets transitioned from individual stocks and bonds to mutual funds to ETFs – driven by newfound efficiencies and portfolio management precision – blockchain-based securities hold much promise as the next wrapper for private and public markets alike.
Throughout 2023, the key themes on this side of digital assets held strong, more or less, across the retail and institutional levels. The year picked up where 2022 left off regarding investment banking activity. Banks like Goldman Sachs, UBS, HSBC and ABN AMRO were all active issuers of digital bonds throughout this time. For example, after teasing a $104 million European Investment Bank (EIB) pilot through its bond issuance platform, Goldman Sachs officially launched the Goldman Sachs Digital Asset Platform (GS DAP) in January 2023, roughly two months after HSBC launched its Orion platform. GS DAP was then responsible for the $102 million digital Green Bond with the Hong Kong Monetary Authority (HKMA) and presumably has additional issuances lined up with the current actively issuing banks like Societe Generale, EIB, Santander and Union Investment, who even captured 15 additional basis points (~$156,000) as the primary purchaser of Goldman’s inaugural EIB issuance. This number will likely only increase with the size of these issuances and full end-to-end digital onboarding, servicing, and management.
Beyond proprietary bank platforms, the industry saw Jefferies re-enter the space after a three-year hiatus, acting as an underwriter alongside Goldman Sachs and JPMorgan in a 3,568 loan $237 million Provenance Blockchain-based HELOC, the first blockchain-based HELOC to receive a rating from a major agency (Morningstar, in this case). Aside from some of these blue-chip names, boutique banks and broker-dealers have been upgrading their own licensing in favor of the digital future, with firms like Dalmore Group, Castle Placement, Bosonic Securities, and even OTC Markets Group, who’s responsible for an existing 10,000 OTC securities, now supporting digital asset securities (blockchain-based products).
More pertinently to advisors, perhaps, is what’s happening on the money market & treasury fund side and the private equity & private credit side - two very different investment profiles, yet two symbiotic cohorts here. Tokenized money markets and treasuries have now surpassed $650 million in collective AUM, essentially acting as a low-risk yield-generating vehicle to park capital in a digital system. That’s all. As new opportunities open up, such as in the alternatives space, it’ll be more seamless to swap from on-chain money markets to on-chain private equity, for instance, than to swap from a traditional money market fund, wait for the fiat money transfer, and rotate into the PE product. That’s a very barebones sample, but it’s one that firms are actively developing end-to-end digital interfaces for. One prominent example specifically bringing this reality to financial advisors, RIAs, and the wealth management industry is Securitize, which originally partnered with Onramp Invest before acquiring it in August 2023 with the goal of enabling alternative investments alongside digital assets.
The near-term goal is rotating stablecoin and cryptocurrency holders into tangible, traditional investment products, fully on-chain. With the security token and tokenized asset secondary markets at a global $15 billion in market cap (Source: Security Token Market) across real estate, pre-IPO shares, investment funds, and other asset classes, there’s plenty of room to run as the ecosystem becomes more and more digital. Money markets and treasuries are the low-hanging fruit for familiarization as the industry builds more robust solutions on the alternatives side.
– Peter Gaffney, Head of Research at Security Token Advisors
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Listen to Larry Fink talk about how tokenization will change the entire financial ecosystem and that the next generation of securities will be tokenized touting the benefits of visibility into beneficial owners information along with instantaneous settlement.
The tokenization of natural resources and the business models behind them is driving awareness in sustainability measurement and tracking. Fun fact, my colleague tokenized the trees in his backyard to gain carbon credits.
Tokenization and crypto are tied together; read more about how tokenization will drive crypto adoption.