Favorable stakeholder attitudes and recognition among financial authorities could boost the share of tokenized assets to 10% of global GDP by the end of the decade.
A newly published report by global consulting firm BCG and ADDX, Digital Exchange for Private Market, indicates that asset tokenization will expand to a US$16.1 trillion business opportunity by 2030. This development comes as the crypto winter has started prompting capital to concentrate on the more effective blockchain use cases.
The projected growth in asset tokenization is driven by broader investor demand for greater access to private markets. Tokenization and asset fractionation lowers the barrier to investment in the private markets by rapidly decreasing minimum lot sizes. Fractionalized and tokenized assets on platforms like ADDX can decrease the minimum investment sizes from millions of dollars to thousands of dollars. Earlier these types of investments were only available to institutions. Tokenized investments can moreover be effectively ‘borderless’ by permitting investors around the globe to invest in markets that were not accessible to them before.
Asset tokenization refers to the creation of tokens on a blockchain to represent an asset for facilitating more efficient transactions. Historically, much of the world’s wealth has been held in illiquid forms. Past studies have estimated the share of liquid assets at over 50% of total assets. According to the report, Illiquid assets face challenges like imperfect price discovery and trading discounts compared to liquid assets. Tokenization also creates liquidity by making it easier to distribute and transact assets among investors.
In addition to that, the report lists five indications that tokenization of assets could be on the cusp of widespread global adoption.
- Increasing trading volume in tokenized assets
- Creating strong stakeholder sentiment across many countries
- Creating recognition among monetary authorities and regulators
- Tokenize more asset classes.
- A growing pool of functional developer talent in the blockchain space
Major institutions have already started tokenizing private funds on ADDX’s platform. Partners Group documented its Global Value SICAV Fund on the platform in September 2021, while Hamilton Lane’s Global Private Assets Fund was launched on the platform in March 2022.
Globally, tokenized assets are expected to grow in less traditional assets such as real estate, equities, bonds, and investment funds, as well as vehicle fleets and patents.
With a 50-fold boost predicted between 2022 and 2030, from US$310 billion to US$16.1 trillion, tokenized assets are expected to make up 10% of global GDP by the end of the decade. Although the concept of asset fractionation has been around for quite some time, its impact has so far been felt mainly in public markets, with structures such as fractional shares, ETFs, and public REITs. In recent years, there has been an important pivot with the emergence of asset tokenization players that apply blockchain technology to private markets and alternative assets.
In anticipation of more widespread adoption of asset tokenization, the report makes several suggestions to current and potential stakeholders. For example, financial institutions could consider finding ways to pilot and deploy asset tokenization projects by upgrading existing business models rather than replacing them.
Developers can formulate standard architectures and protocols to ensure an easier, more seamless ‘on-ramp’ into the tokenization world. Companies should also work on improving financial literacy among clients to assist them in understanding tokenization as well as the underlying asset classes it provides access. Regulators can establish sandboxes to stimulate innovation and set straightforward rules around tokenization while monitoring how tokenization may influence investor and consumer protection and market integrity.
Sumit Kumar, the Managing Director and Partner of BCG South East Asia said that they are more likely to ascertain viability in this capital-constrained environment and are therefore more nicely set to lure the attention of investors, who have a significant store of dry powder to deploy. According to him, this report indicates that after utilizing a conservative methodology, by 2030, asset tokenization would be a US$16.1 trillion business opportunity. In the best-case scenario, that estimate can go up to US$68 trillion.
Oi-Yee Choo, the CEO of ADDX, stated that asset prices can only rise to their genuine economic value if the obstacles to investor participation and ownership transfer can be reduced. For years, the technological tools for overcoming those obstacles were costly and thus available only on public exchanges. According to him, Blockchain transforms the game because it can be used cost-effectively in private markets and alternative assets, where investors are fewer in number, a little wealthier, and products are more customized. He also added that the result should be making our hearts race: assets can be liquid for both general and private markets. The probable economic benefits are significant. Identifying assets for their true worth should translate into more investments and fairer capital allocation. This in turn will generate economic growth and more jobs. The real victor here is the real economy.
Source- Unlock media