‍Asset tokenization is set to take over 10% of the global GDP by 2030.

According to a report by BCG, just one of the future applications of cryptocurrency has the potential to represent a market value of 16 trillion dollars, which is equivalent to 10% of global GDP. The report, titled "Relevance of on-chain asset tokenization in 'crypto winter,'" served as inspiration for this article

This is the third part in a crypto series, focused on the concept of asset tokenization. There's a part 1 that deals with extensive crypto investment research and part 2 that discusses crypto investment management.

The process of breaking down assets into smaller parts is called asset fractionalization and makes illiquid investments, such as fine art, real estate, luxury items, and pre-IPOs, accessible to ordinary investors. These types of investments, which are typically only accessible to the wealthiest individuals, have high average ticket prices and are not easily investable by the general public. However, by fractionalizing these assets, they become more accessible and available for investment. Along with traditional investments like stocks, bonds, and index funds, fractionalization provides more options for ordinary investors. Asset fractionalization allows individuals to invest in a portion of expensive assets, like stocks and real estate, rather than having to purchase the entire asset. Currently, this is made possible through investment vehicles such as REITs and index funds and even fractional shares offered by most brokers. However, fractionalization only works in highly developed and technologically advanced markets, leaving complex and illiquid assets, such as those with manual processes, hard-to-trace data, and high overhead costs, unreachable for ordinary investors. As a result, the lack of technology in these areas results in missed investment opportunities worth trillions of dollars for everyday investors.

Asset tokenization solves the problem of inaccessible investments by storing fractionalized assets on a secure, immutable, and tamper-proof blockchain. This allows for investment in assets like wine, which would typically require a large amount of capital and time commitment, to be made possible. By using asset tokenization, ownership can be accurately accounted for, making it easier for individuals to invest in a variety of assets, even those with complex and manual processes.

‍

What does it solve?

• Blockchain technology makes the process more secure, auditable, and formal - Storing data on a blockchain makes it automatically publicly visible and distributed on computers around the world that will verify its authenticity. The data is now safely stored, immutable, and transactions can’t be undone.

• Smart contracts represent the ultimate enforcer of payments, ensuring that funding is stored in the smart contract address where the conditions of the trade have been previously defined and accepted by both parties. Asset tokenization offers options for fungible tokens or NFTs for unique asset ownership, ensuring the traceability and enforceability of the token and the underlying asset.

• SBTs allow for automatic and verifiable provenance with cryptographic transaction signing, while Soulbound tokens allow for the sender and recipient wallets to prove the authenticity of the asset and the trustworthiness of the trade.

• Public blockchains, being absolutely traceable, will actually be a great weapon against money laundering and other criminal activities in the illiquid asset markets, as they are traditionally fueled by rampant corruption and tax-avoidance schemes. Ensuring KYC and compliance in previously opaque illiquid asset transactions makes the process a completely transparent and formal process.

The asset tokenization process faces two major challenges:

• Technological limitations: Currently, blockchains are still in the process of evolving and the biggest limitation they face is decentralized scalability. This is a crucial milestone that has yet to be reached, and without it, blockchains cannot support a potential $16 trillion asset tokenization market and other future applications such as DeFi and the Internet.

• Regulatory hurdles: Since many of these assets are cross-national, with different countries participating with varying regulations, there must be adjustments made to the process to ensure compliance with each country's regulations.

‍

Gain exposure to the revolution

To gain exposure to asset tokenization, one can invest in projects tackling the issue through buying their cryptocurrency, gain indirect exposure by owning the cryptocurrency of the platform-level project, or look for non-crypto companies that are involved in or considering becoming involved in asset tokenization and offer tokenized versions of their assets.

In conclusion, asset tokenization through the use of blockchain technology has the potential to revolutionize the way people invest and bring democratization to the world of finance. Being ahead of the trend and studying the growth and development of this field can give investors a significant advantage in the coming years. As such, it is important to include asset tokenization as a key area of research in your investment strategy

This is the third part in a crypto series, focused on the concept of asset tokenization. There's a part 1 that deals with extensive crypto investment research and part 2 that discusses crypto investment management.

Disclaimer: The opinions expressed in the Blog are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product. It is only intended to provide education about the financial industry. The views reflected in the commentary are subject to change at any time without notice. Nothing on this Blog constitutes investment advice, performance data or any recommendation that any security, portfolio of securities, investment product, transaction or investment strategy is suitable for any specific person. From reading this Blog we cannot assess anything about your personal circumstances, your finances, or your goals and objectives, all of which are unique to you, so any opinions or information contained on this Blog are just that – an opinion or information. You should not use this Blog to make financial decisions and we highly recommended you seek professional advice from someone who is authorised to provide investment advice.