At the end of 2022, the Monetary Authority of Singapore announced that Project Guardian had completed its first live trades. Believed to be the first time a major bank had tokenized deposits on a public blockchain, the project brought together DBS Bank, JP Morgan and SBI Digital Asset Holdings to conduct foreign exchange and government bond transactions on the Polygon network.
This is just one example of the growing movement to tokenize real-world assets like stocks, bonds, commodities, real estate and more with blockchain technology. Businesses are clamoring to develop strategies to join the tokenized economy, driven by the superior capabilities of moving and managing tokenized assets on a blockchain, including access to always-on markets, improved efficiency and automation, improved data transparency, security encryption capabilities, and greater financial agility and flexibility, to name a few.
This first installment of a three-part series around tokenization and the impact to global business charts the evolution and growing adoption of this groundbreaking technology. Specifically, how and why more enterprises are turning to tokenization to unlock liquidity, enhance efficiency and realize transparency — ultimately delivering on the promise of the Internet of Value.
From Crypto Payments to Global Asset Transformation
As knowledge of the benefits of crypto grows, finance leaders and corporations have focused on streamlining payments. While payments remains a pivotal use case for crypto today, industries are also exploring the potential for blockchain to reduce frictions associated with illiquid assets.
Although real world asset tokenization is nascent, it’s a natural next step in the evolution of blockchain technology. Traditional financial institutions are recognizing the benefits that blockchain can bring, particularly in terms of increasing liquidity.
The Boston Consulting Group predicts that tokenized assets could represent a $16 trillion business opportunity, constituting 10% of global GDP by 2030. This sentiment is echoed in Ripple’s 2023 New Value Report, which found that 50% of global finance leaders believe tokenization will have significant impacts on nearly every asset class, including bonds, private equity, real estate, commodities, derivatives, and carbon markets.
Token Pioneers Lead the Way
The tokenization revolution is already underway, with visionary companies pioneering the transformative potential across multiple sectors. The common through-line that tokens can provide to market participants is increased liquidity and interoperability between assets and blockchains.
Take the voluntary carbon credit market, for example, which currently operates as a private market where information is hard to access. Carbon credit data gathering, managing, and sharing is extremely fragmented and opaque and relies on manual processes. This lack of transparency combined with antiquated processes — data performance reports and carbon credit certificates are still issued as PDFs — creates an opportunity for manipulation and extractive fees that impede scalability.
Companies like Thallo are overcoming these issues by tokenizing carbon credits so data is moved, managed, and recorded on the blockchain. By tokenizing carbon credits via blockchains, companies can leverage a fully transparent carbon credit platform and access a marketplace that allows for trading of high quality carbon credits and green bonds. Thallo is driving more transparent pricing and greater liquidity, enabling more efficient trading of carbon credits by connecting the right sellers with the right buyers.
Beyond carbon credits, a range of tokenization use cases in financial services applications are also gaining momentum. In November of 2023, HSBC announced that the company will work with Metaco to develop a digital asset custody service for institutional clients that plan to invest in tokenized securities or tokenized gold.
Singapore’s DBS Bank issued a tokenized bond on its digital platform. The token is traded in lots of $10,000 versus the typical $250,000, making the token more accessible to a wider range of investors. Tokenized funds from asset managers like Hamilton Lane and KKR also offer reduced investment thresholds, increased liquidity, and broader investor participation.
Pivoting to another industry plagued with liquidity issues, real estate transactions — historically slow, cumbersome and time-consuming — are also being streamlined through tokenization. Blockchain startups like Propy are introducing smart contract technology and NFT real estate transactions to enable rapid property purchases. Stablecoins like $HOME can also support democratized real estate investment by providing end-users with greater accessibility to the residential mortgage market which has traditionally been monopolized by large investors such as the US government and ultra high net-worth individuals.
Tokenization has the power to turn real estate on its head, transforming an industry defined by illiquid assets into one that is faster, more secure and transparent.
Tokenization Is Here to Stay
Of the more than 1,700 finance leaders that took part in Ripple’s recent global survey, 72% expect to explore tokenization in the next three years, solidifying the technology’s place as a cornerstone of innovation. The benefits of blockchain can provide businesses the flexibility needed to capitalize on changing market conditions and access a more diverse set of asset classes.
Learn how Ripple can help your business get started on a tokenization strategy today.
