One of the most optimistic and widely referenced articles on the global potential of asset tokenization was published about a year ago. Titled “Relevance of on-chain asset tokenization during the “crypto winter”“, he cited improved liquidity, accessibility and democratization of investment as the main benefits of this practice which will see it grow into an expected $16 trillion opportunity in the years to come. Fast forward to today, and this narrative has not only stuck but strengthened its plausibility, as the past year has been filled with examples of global adoption.
Below, we look at what a group of panelists – speaking on day two of the inaugural conference TokenizeThis Summit by STM – had to say on this very topic and future trends in tokenization.
What is tokenization?
Before we explore who these panelists were and the ideas they shared, it’s important to have a rudimentary understanding of what it means when someone uses the phrase “tokenization.”
Tokenization in the context of blockchain refers to the conversion of rights to an asset into a digital token on a blockchain. It essentially involves issuing a blockchain token (secure digital representation) that digitally represents a real tradable asset. These tokens can represent any asset, such as real estate, stocks or commodities, and enable fractional ownership, easy transfer and the ability to transact on decentralized platforms, thereby improving liquidity and facilitating access to investments.
On the second day of the TokenizeThis Summit, the first panel shared insights into the global adoption of tokenization. Among the participants were,
- Oi-Yee Choo, CEO of ADDX
- Jacobo Ochando Orti, head of tokenization at Deloitte
- Lorenzo Rigatti, CEO of BlockInvest
- Graham Rodford, CEO of Archax
The global nature of these participants only highlights how widespread the adoption is, with panelists hailing from Singapore, Italy, Spain and the United Kingdom.
Key themes and comments
Throughout this discussion, it was interesting to see different perspectives formed by each panelist as they learned to operate in different regulatory environments. When asked whether the future of tokenization would occur on a private or public blockchain, there was a clear consensus that regulators currently prefer private variants. However, Choo and Rodford both elaborated, stating that much of the reasoning behind this preference lies in existing KYC and AML requirements. The entire panel, however, seemed to agree with the idea that we are building a future in which public blockchains become the standard among tokenization efforts.
“We support both, but I’m very much on the side of ‘public, this is really where it’s going to take off in the future'” – Graham Rodford, CEO of Archax
Rigatti also emphasized that while this transition must eventually occur due to the lack of scalability and interoperability of private blockchains, their public variants must also be proven environmentally friendly.
Here are some of the other key themes that emerged from this discussion:
- Capital increases have shown promise, although they may be difficult to achieve in the current macroeconomic environment.
- More research needs to be done on what investor information should be maintained online or off-chain.
- Tokenization does not automatically make a product attractive. Efforts have yet to meet demand and the industry should only tokenize already strong assets
- A regulated decentralized autonomous organization (DAO) is still far away
Interestingly, the group as a whole seems to agree that while the real estate market is often seen as the ideal environment for disruption through tokenization, initial efforts should be focused on underlying assets that are less localized/niche. For BlockInvest, Rigatti says this led them to focus on shares of corporate bond funds and similar products.
Final thoughts on tokenization
In light of recent progress and adoption levels, tokenization is poised to sculpt a future where assets will be more easily accessible, transactions will be executed with increased efficiency, and investments will be democratized. The leap in global adoption is expected to herald a financial era where the merging of tangible assets with their digital counterparts not only bridges traditional finance with decentralized finance, but also opens up new opportunities for investors and businesses.
As comments from the second day of the TokenizeThis Summit show, for this potential to be realized, the market must first address the current lack of interoperability and uniform regulation. Fortunately, it appears that these questions are already being addressed, making the oft-rumored $16 trillion potential not as far-fetched as it might first appear.
Overall, the integration of blockchain technology, demonstrated by thriving tokenization practices, subtly underpins a bright, inclusive and innovative financial future for all.