NYDIG suggests that the tokenization of assets, while currently offering limited advantages, holds significant potential for expansion as it becomes more democratized. Greg Cipolaro, the Global Head of Research at NYDIG, noted that the immediate benefits to networks such as Ethereum, where these assets reside, are initially modest. However, these benefits are expected to grow as access, interoperability, and composability increase.
The primary benefits at this early stage include transaction fees from the use of tokenized assets. Blockchains that host these assets will likely experience increasing network effects due to storing them. The concept of tokenizing real-world assets (RWAs), such as stocks, has gained traction in the crypto industry. Major exchanges like Coinbase and Kraken are considering launching tokenized stock platforms in the U.S., following successful implementations overseas.
Paul Atkins, Chairman of the Securities and Exchange Commission, suggested earlier in December that the U.S. financial system could embrace tokenization within a few years, signaling that tokenization is likely to become a major trend. Cipolaro envisions a future where these RWAs become integrated into DeFi, potentially serving as collateral for borrowing, assets for lending, or for trading. However, this evolution will require time, technological development, infrastructure build-out, and regulatory adjustments.
Cipolaro also noted the complexities involved in creating composable and interoperable tokenized assets, given their diverse forms and functions and their hosting on both public and non-public networks. Currently, the Canton Network, a private blockchain developed by Digital Asset Holdings, is the largest blockchain for tokenized assets, holding $380 billion, which accounts for 91% of the total represented value of all RWAs. Ethereum is the most popular public blockchain for tokenized assets, with $12.1 billion in RWAs.
Tokenization offers numerous potential benefits, including increased transparency, cost efficiencies, improved auditability, and greater market access. Tokenization and the recording of transactions on a blockchain could potentially increase transparency, cost efficiencies, auditability, and market access, but still rely on trust and coordination with central entities. Unlike Bitcoin, which is designed to operate without trusted intermediaries, tokenized assets often rely on trust and coordination with central entities.
The suitability and accessibility for investors can vary, depending on the specific instrument. These instruments do not always trade in DeFi or through traditional crypto exchanges. Tokenization can address the liquidity problem affecting many assets, from real estate to fine art and precious metals, by breaking these assets up into fractions, expanding the potential pool of buyers and making trade much more attractive. By representing ownership rights for physical assets digitally on a distributed ledger or blockchain, the goal is to dramatically reduce the number of intermediaries and paperwork economic participation usually requires.
In conclusion, while the benefits of tokenization are currently limited, the potential for growth is substantial, especially if the process becomes more democratized and integrated with decentralized finance. The development of technology, infrastructure, and regulations will be crucial in realizing the full potential of tokenized assets.
