Opinion: RWA Tokenization Presents Tremendous Prospects alongside Necessary Trade-Offs
Disclaimer: The author’s views and opinions expressed in this article are their own and do not reflect the views and opinions of crypto.news’ editorial team.
Most crypto analysts and experts are in agreement that the tokenization of real-world assets (RWA) will be a defining trend in 2024. In early January, asset managers Brevan Howard and Hamilton Lane made headlines by announcing their plan to tokenize their funds, partnering with Libre to bring assets onto the blockchain. This followed similar announcements from financial giants like Deutsche Bank in September and HSBC in October, both of which are establishing digital asset custodial services for tokenized assets. However, this is just the beginning. Boston Consulting Group estimates that the tokenization of illiquid assets presents a $16 trillion business opportunity, with up to 30% of that coming from non-financial assets such as intellectual property, artworks, and car fleets.
The rising interest in asset tokenization will inevitably create a demand for financial infrastructure and expertise similar to what already exists in decentralized finance (defi). However, those in the crypto-native space must make difficult decisions and potentially compromise on long-held principles in order to seize these unprecedented opportunities.
The unique nature of on-chain opportunities has shaped the way builders and users operate within the crypto space. While there are limitations imposed by the technology, there are also benefits and new possibilities enabled by on-chain infrastructure.
Decentralized exchanges (DEXs) serve as a prime example. Traditional finance (TradFi) exchanges rely on market makers to provide liquidity through the central limit order book model. However, early order book DEXs did not have market makers due to high fees on Ethereum. This led to the dominance of the automated market maker (AMM) model pioneered by Uniswap, where liquidity providers pool funds for token swaps. With advancements in blockchain infrastructure and the sophistication of DEXs, on-chain order book exchanges have emerged. Institutions interested in maximizing the potential of RWA tokenization now have various options for structuring DEXs based on the needs of their customers. Traders may prefer limit order books for improved capital efficiency, while investors may opt for simpler, AMM-based DEXs with lower fees.
As the crypto industry matures, we have seen traditional companies investing in or acquiring crypto-native projects and companies to gain access to on-chain opportunities. For example, financial infrastructure giant DTCC acquired blockchain-based financial and regtech developer Securrency, and Kasikornbank, Thailand’s second-largest bank, acquired local crypto exchange Satang. Institutions and companies are also actively hiring experts in defi and digital assets, as seen with the Federal Reserve of San Francisco, S&P Global, and the National Payments Corporation of India. As interest in RWA tokenization and defi grows in 2024, hiring in these areas is expected to increase further.
While this growth presents unprecedented opportunities, individuals in the crypto sector may need to make decisions and compromises based on the realities of the global financial sector. The digital asset space has evolved around principles such as decentralization, privacy, and community, which may conflict with corporate and institutional finance principles and regulations. Compliance requirements often leave little room for privacy, and decentralized governance challenges traditional corporate structures. As the march towards RWA tokenization continues, it may seem that institutions hold the upper hand, while crypto-natives must choose between working on initiatives based on privacy, transparency, or inclusion.
As a result, individuals in the crypto sector may face difficult choices. Accepting equity deals, takeover bids, or roles at financial institutions means embracing a different reality from what the cypherpunks envisioned. However, in 2024, adoption is synonymous with institutional investment and mainstream interest. If adoption is a worthwhile goal, compromising should be a more manageable decision.
Read more: We must bridge the blockchain skills gap in 2024 | Opinion
Aman Arman is a senior marketing executive at Planet ReFi, an ecosystem that utilizes blockchain technology to address social and sustainability challenges, paving the way for a transparent and sustainable future.
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