(Kitco News) -
A new report from Citi predicts that “tokenization of financial and real-world assets could be the ‘killer use-case’ blockchain needs to drive a breakthrough,” with tokenized securities set to reach over four times the size of today’s total cryptocurrency market within the next seven years.
“We forecast $4 trillion to $5 trillion of tokenized digital securities and $1 trillion of distributed ledger technology (DLT)-based trade finance volumes by 2030,” the Money, Tokens and Games report said. According to CoinGecko, the total market cap for all cryptocurrencies including Bitcoin currently stands at $1.2 trillion.
Citi’s prediction is even more dramatic when measured against the current value of tokenized securities themselves, as this would represent 80x growth.
The bank estimates that $1.9 trillion of the up to $5 trillion will be tokenized debt, $1.5 trillion will be real estate, $700 million will represent venture capital and private equity, and between $500 million and $1 trillion will be tokenized securities like stocks.
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“The end state is a vision of a digitally native financial asset infrastructure, globally accessible, operating 24x7x365 and optimized with smart contract and (Digital Ledger Technology) DLT-enabled automation capabilities, which enable use cases impractical with traditional infrastructure,” they wrote.
The report distinguishes between two main types of tokenization: Tokenized Outstanding Securities, which is “the immobilization of an underlying traditional security in a digital infrastructure and reissuance in a tokenized format,” and Native Digital Security Tokens, which is the issuance of “fresh securities directly onto DLT infrastructures and holding them in DLT-linked wallets.”
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While tokenized outstanding securities are “the most common and widespread approach” today, Citi predicts that native digital security tokens are “where the largest impact is expected in the long-term.”
The report also contains an interview with John Wu, President of Ava Labs, who believes blockchain technology will ultimately benefit all businesses including those outside financial services, but tokenization will be the game-changer for assets.
“When you tokenize an asset, it transfers the right of ownership into a digital form on a blockchain,” he said. “This offers ease of use for owning and transferring assets, as the rules around ownership and transfer are embedded into the code. As a result, one does not need as many lawyers, auditors, and other intermediaries.”
Wu said that the more complicated the class of assets is, the more value tokenization can add. “In structured products, you have so many different participants all trying to figure out the transparency of the data and then get a pricing on the data. If you're a smaller entity, you have limited access and transparency to the complicated and illiquid assets. Historically, illiquid assets tend to have more intermediaries and are more suited for disruption by blockchain and tokenization,” he said.
“On the other end of the spectrum, tokenization can enable emerging market participants to have access to public market assets in developed markets.”
When asked where we are on the path to full adoption of blockchain, Wu said enormous progress has been made, but the technology has “not yet hit lift-off velocity.”
“On a scale of 1 to 100, where 100 represents full adoption, in my view, we are still in the early stages, probably near 20 or 25 on the scale,” he said. “However, just twelve months ago, we were near 5 or 10 on the scale, and just 24 months ago, we were at 1 or 2.”
“In my view, we will be close to mass adoption when we reach a level of 50 on the above scale. For reference, reaching a level of 100 would signify we do not even talk about blockchain anymore and use it seamlessly in our daily lives.”
