May 24, 2024

Many crypto investors now see the early crypto assets like Bitcoin and Ethereum as old-fashioned. Notably, traditional assets are getting a new breath of life and regaining investors ‘ investors’ attention with tokenization through blockchain technology.

With the unpredictable stance of the crypto market, will tokenization provide a better trading option through competitive and fast innovative attributes? The rising traction to tokenized real-world assets could present a huge rivalry for traders in the cryptoverse.

Increasing Tokenization Of Traditional Finance Assets

The dramatic and continuous fluctuations of crypto prices are well known and form part of the rise in competition among traders. They constantly strive to outplay one another by seeking higher gains in the highly volatile crypto market.

Tokenization is hitting a critical mass as traders are recently opting for tokenized trading platforms. Blockchain-based virtual tokens are emerging to represent assets from stocks, bonds, and even real estate.

Over the past year, huge financial companies have either invested in token trading and investment platforms or plan to develop such. These include the London Stock Exchange Group, Wisdom Tree, and Mirae Asset Securities.

Firms like Franklin Templeton, ABN Amro, and UBS Asset Management have already rolled out tokenized versions of traditional assets such as green bonds and money market funds.

In May, EY-Parthenon conducted two surveys with over 300 respondents regarding the tokenization trend of traditional assets. The survey revealed that more than one-third of US-based institutional investors and about two-thirds of high-net-worth investors intend to invest in tokenized assets this year or next.

Additionally, data from Dune Analytics disclosed a total market cap of $345 million for tokenized public securities. Though the value is just a flake of the broader crypto market’s $1 trillion market cap, it’s still quite significant.

Also, tokenized assets recorded a surge of 2.3% within the past 30 days. Given this data, many picture a greater future for tokenization within traditional finance. Early this year, Northern Trust and HSBC jointly estimated digitalization of 50% to 10% of all assets by 2030.

Tokenization Has Become A Potential For Savings

Colin Butler, global head of institutional capital at Polygon Labs, a blockchain firm, highlights the importance of tokenization. He sees its great potential for savings, especially on transaction costs with big investment players involved.

Butler stated: “It’s a knife fight right now for market share and profits, so these cost-reduction ideas are very powerful.” He noted that institutions have inputted several years of research regarding tokenization. Finally, they have reached a comfortable zone to launch related projects through tokenization.

Further, many people support the benefits of tokens in the industry. Tokenization has laid out increased accessibility and fractional ownership for investors.

In traditional finance, tokenization brings more transparent trading, increases liquidity, and cuts costs and settlement times. Such advantages of tokenization come from automated processes through smart contracts—blockchain-based agreements that function automatically.

However, some critics pointed out some setbacks of tokenization, like lack of regulatory oversight and security and susceptibility to market manipulation. Also, the value of tokenized traditional assets and their issuance is still low due to minimal investor adoption.

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