Tokenization and Real-World Assets Take Center Stage

Blue-chip institutions including Goldman Sachs and J.P. Morgan are trialing digital asset offerings, seeking cost savings and efficiencies.

AccessTimeIconNov 22, 2023 at 4:45 p.m. UTC
Updated Jan 26, 2024 at 3:01 p.m. UTC
AccessTimeIconNov 22, 2023 at 4:45 p.m. UTCUpdated Jan 26, 2024 at 3:01 p.m. UTC
AccessTimeIconNov 22, 2023 at 4:45 p.m. UTCUpdated Jan 26, 2024 at 3:01 p.m. UTC

The asset tokenization and real-world asset (RWA) space caught the eye of retail and institutional capital investors in 2023 for its favorable blend of professionally-managed products and digital asset mechanics. Having advised 40-plus clients on tokenization strategies and issuances to date, we see the following key themes emerging in these markets in Q3 2023.

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Blockchain Savings and Bottom-Line Improvements

For investors entering this space, the greatest efficiencies will come through end-to-end digital systems – meaning an on-chain lifecycle. That means savings in dollars or manual labor time relative to traditional processes. For example:

  • Goldman Sachs Digital Asset Platform (GS DAP) achieved 15 basis points in savings for its €100M digital bond issuance, resulting in €150K of added return passed onto Union Investment as the sole buyer.
  • J.P. Morgan’s Onyx Digital Assets (ODA) is projecting $20 million in savings on an expected $1 trillion in tokenized repo volume by the end of 2023.
  • Broadridge’s Distributed Ledger Repo (DLR) is saving sell-side clients like Societe Generale $1 million per 100,000 repo transactions.
  • Equilend launched 1Source as a distributed ledger-based securities lending solution to save the securities lending industry an estimated $100 million in collective costs.
  • Structured finance servicing platform Intain reports 100 basis points in savings by reducing SME loan lifecycle fees from 150 bps to 50 bps through Hyperledger and Avalanche blockchain solutions.
  • Vanguard is leveraging R3’s Corda through Grow Inc. to achieve straight-through processing saving 100 hours a week in labor.
  • Liquid Mortgage has reduced Mortgage-Backed Securities (MBS) reporting from 55 days to 30 minutes on the Stellar blockchain.

Money Markets and Treasuries as the Low-Hanging Fruit

Asset managers and issuers are familiarizing themselves with tokenization workflows by trialing money market and treasury products. These tokenized assets generate a yield that can be passed on to clients, fully on-chain.

While alternative product strategies, like Hamilton Lane’s digitally-native private equity share classes, are in the works, money markets yield ~5% annually in low risk segments. This asset class accumulated almost $700 million in on-chain capital by the end of Q3 2023, up almost 520% YTD.

On-Chain Treasury Market Cap

Tokenized Product Distribution through Institutional Client Bases

One of the weak points in the tokenization industry to date is actual product distribution and capital syndication. Institutions are beginning to move beyond just tokenizing assets for operational uses and savings (repo, collateral management) and are now placing tokenized products with their own client bases as buyers.

Citi is one name leading the charge here, offering digital corporate bonds through Singapore’s BondbloX to its Southeast Asia private banking and wealth management clients. UBS built upon its previous $400+ million digital bond issue to high-net-worth clients with an Ethereum-based money market fund, also in Singapore.

As blue-chips like JP Morgan and Goldman Sachs continue to develop their digital suites, expect their private banking, wealth & asset management, and alternatives teams to act as distribution channels unlocking serious capital that retail broker-dealers struggle to access.

Edited by Ben Schiller.

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Peter Gaffney

Peter Gaffney is the Head of Research at Security Token Advisors.