According to a report from the cryptocurrency exchange Coinbase, the tokenization of financial assets is increasingly becoming a popular trend. Experts have highlighted the benefits of this process while also identifying hurdles in its implementation.
Companies initially showed interest in the concept of tokenization back in 2017, particularly concerning ownership rights of unconventional physical assets represented on the blockchain. Presently, they are keen on expanding the use of tokenization to government bonds, money market funds, and repurchase agreements.
Although in 2017, tokenization didn't meet expectations due to a shift in focus towards decentralized finance (DeFi), recent years have seen a surge in interest in tokenizing real assets. This is attributed to decreased activity in the cryptocurrency market in 2022, prompting a reassessment of the blockchain's value. The crisis in the US banking sector also emphasized the need for increased profitability, enhancing the appeal of tokenized products.
The adoption of asset tokenization among financial institutions is being propelled by instant settlements, process automation, and improved transparency in audit trails. These advantages are further reinforced by the ability to conduct transactions round the clock and eliminating the need for intermediaries, thereby simplifying online payments and settlements.
According to Coinbase analysts, the main challenges on the path to asset tokenization include a preference for private blockchains due to doubts about open networks, risks of exploits in smart contracts, oracle manipulations, and network failures. Regulatory complexities might also hinder widespread adoption of tokenization as many jurisdictions lack a clear legal framework for this process.
Analysts from the investment bank Citi forecast an explosive growth in the tokenized asset market, expected to reach $4-5 trillion by 2030, an 80-fold increase from the current level. Other research, such as that conducted by companies like Boston Consulting Group and ADDX, is even more optimistic, predicting the tokenization of illiquid assets to reach $16.1 trillion by 2030.