Everyone from TradFi (traditional finance) leaders to crypto experts predict that tokenization opportunities will reach into the tens of trillions. While we are already witnessing some compelling use cases, it is still just a drop in the ocean compared to the large amount of digitized assets that are likely to be on-chain in the coming years.
When will the current tokenization trend turn into a torrent? And what is stopping it?
In October, Forbes magazine published an article that delved into this issue with the provocative title, “Why Tokenization is Failing.” Written by author and director of digital asset research Stephen Stephen. Steven Ehrlich shares a number of failed or disappointing digitization projects and concludes that the problem holding back adoption is not technology, but trust.
i don’t think so.
The main reason why the tokenization market has not really taken off is due to technical bottlenecks, current infrastructure and interoperability limitations. But in the last year, amazing progress has been made in overcoming these problems. It’s easy to point out projects that didn’t work out, but the real story of tokenization in 2023 will be driven by the power of large financial institutions entering the market, enabling the next wave of tangible results to materialize. This is because the foundation has been laid.
Private equity funds and credit lead the way
If you talk to anyone familiar with the tokenization ecosystem, they will tell you that 2024 is full of great potential.
First, there is a strong interest from private equity funds in developing new tokenized products for their investors, and they are also rushing to commercialize these ideas.
This trend is likely to continue into 2024, as TradFi giants including Hamilton Lane and JPMorgan develop tokenized funds. It is also inevitable that more structured financial products will soon be developed, including assets built from new revenue sources such as private credit. It’s a logical next step for financial products that are digital in nature and relatively easy to move on-chain.
Necessary expansion into other assets
But these products are just the beginning. Next-generation tokenized assets will also include products such as bonds and stocks. Over time, real assets (RWA) such as art, cars, commodities, and fine wine will be traded on-chain. In fact, use cases such as fractional ownership of classical works of art already exist.
Tokenization of real estate, in particular, could be a huge boon for a market that has traditionally been complex and illiquid. Not only will the market become digitally native, but there will also be benefits such as fractional ownership and near-instant payments.
These moves make investing more accessible and bring new liquidity to an otherwise rigid market. A whole new generation of investors will begin to take advantage of the potential of tokenization, breathing new life into legacy markets.
As new institutional investors and assets emerge, so do new payment methods, requiring industry-wide standardization to make all these products and markets interoperable.
Moreover, it not only demonstrates the power and utility of tokenization, but also builds trust, which Forbes rightly identifies as a key driver of demand. In 2024, the new tokenization trend will turn from a trickle to a river, and we will be certain that the most profound revolution in the financial industry in centuries will take place.
｜Translation and editing: Akiko Yamaguchi, Takayuki Masuda ｜Image: Vlad Busuioc/Unsplash ｜Original text: 2024 Will Be the Year Tokenization Truly (Finally) Begins
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