Opinion: The Empowering Force of Tokenization Shakes Up Wall Street for Investors
Disclosure: The opinions expressed in this article are solely those of the author and do not represent the views and opinions of crypto.news’ editorial team.
“The Times They Are-A Changin'”—this iconic opening line from one of Bob Dylan’s beloved songs perfectly captures the current shift in asset-holding patterns.
A recent comprehensive market study conducted by Ernst&Young (E&Y), one of the Big Four accounting firms, highlighted a significant increase in interest and allocation to digital assets and tokenization. The study revealed that institutional investors are growing more confident in the long-term value of blockchain and digital assets. In fact, 57% of institutional investors expressed interest in investing in tokenized assets, with 93% believing in the long-term value of blockchain technology.
What’s interesting is that these investors not only want to tokenize assets, but they also have clear strategies on how to do so. For example, 71% of institutional asset managers surveyed planned to tokenize their assets through partnerships with digital native or tokenization firms. Another 21% intended to build the necessary infrastructure internally, while 5% were looking to acquire a tokenization startup.
So, what are the benefits that these experienced fund managers see in tokenization that make them plan so meticulously? Let’s explore the empowering potential of tokenization.
Tokenization, as defined by McKinsey & Company, is the process of issuing a digital, unique, and anonymous representation of a real thing. This process requires a blockchain. Institutional investors prefer public-permissioned blockchains for tokenizing their assets, followed by private chains (40%) and public chains (22%).
One of the most alluring aspects of tokenization is its inclusivity, as it allows a wide range of assets to be tokenized. This includes real estate, art, bonds and equities, intellectual properties, and even identity and data.
There are already numerous examples of real-world assets being tokenized and made accessible to a broader base of investors. For example, tokenized gold assets surpassed $1 billion in combined market capitalization last year. Tokenized gold represents physical gold bullion, with ownership rights stored as digital tokens on a blockchain. While the physical gold is held off-chain by financial institutions, digital tokens on the blockchain represent ownership rights. Companies like Paxos Trust Company and Tether offer tokenized gold coins.
Art is another asset class that has embraced tokenization. For instance, a blockchain platform called Freeport announced plans to launch a tokenized art platform featuring iconic Warhols. Although the platform didn’t materialize, it highlighted the growing trend of tokenizing art. Sygnum Bank tokenized Pablo Picasso’s masterpiece, allowing 50 investors to collectively own the artwork through digital tokens. Famous artists like Damien Hirst and Beeple have also joined the movement.
As this trend continues, the tokenization of real-world assets is transforming various asset classes. According to the Boston Consulting Group, the total size of tokenized assets, including less liquid assets like real estate and natural resources, could reach $16 trillion by 2030.
But what drives this surge in value? How can blockchain unlock trillions in liquidity? Several factors contribute to the growth of asset tokenization.
One key factor is the potential for tokenization to make asset holding more democratic, equitable, and inclusive. Blockchain, with its vision of eliminating costly intermediaries, aligns perfectly with this goal. Fractionalized ownership through digital tokens makes investing in high-value assets like art or real estate more accessible. Tokenization democratizes the process, allowing retail investors to own a slice of something extraordinary.
Smart contracts and blockchain protocols facilitate this innovative approach, eliminating the need for traditional brokers. Retail investors can invest directly from their homes with just a digital wallet and an internet connection.
Tokenization also improves price discovery, lowers costs, and increases liquidity. It brings enhanced transparency and security to asset holdings, reducing fraud and providing auditable data trails.
Efficiency is another advantage of investing in tokenized assets. Programmable smart contracts streamline the backend process, eliminating administrative lapses.
As the market grows, it will attract innovation and inventive solutions. Interoperability will play a crucial role in bringing isolated systems together, enhancing scale, transparency, and efficiency.
Tokenization is rapidly expanding beyond traditional assets. Cash tokenization is gaining momentum in the financial services sector, with approximately $120 billion of tokenized cash in circulation in the form of stablecoins. Tokenization also offers a solution for carbon credits, allowing for increased transparency, transferability, and adoption.
Tokenization goes beyond empowerment—it opens up investment opportunities to anyone with a digital wallet, regardless of their financial status. It allows individuals to own a piece of high-value assets that were once out of reach.
The future of tokenization is filled with innovation and ingenuity. With a projected multi-trillion dollar market, it’s an exciting time for investors to explore the opportunities offered by tokenized assets.
Cloris Chen, the CEO of Cogito Finance, a defi platform specializing in tokenizing fixed-income assets and equities, understands the challenges in the defi space and leverages AI expertise to address them. Through tokenization, investors can optimize their returns and participate in a more democratic and efficient investment environment.
