This is the second part of this article. Here is the first part.
It turns illiquid assets into tradeable digital tokens. Tokenization unlocks liquidity and creates more opportunities for investments. Let’s discover more about this report from The Boston Consulting Group.
Growth of Digital Asset Trading Volume
The on-chain asset tokenization market has been expanding rapidly. In 2021, it surpassed USD 2.3 billion and would reach USD 5.6 billion by 2026. It reflects a compound annual growth rate (CAGR) of 19%.
Daily trading volumes in digital assets have seen a fivefold increase. It moved from EUR 30 billion in 2020 to EUR 150 billion in 2022. Experts predict it could do more by reaching 3 trillion USD in Asia alone
Source: BCG Report
Positive Stakeholder Sentiment and Successful Pilots
There is more positivity in stakeholder sentiment toward tokenization at present. The 2021 research indicates the increasing popularity of tokenized platforms. An Indonesian firm known as Nanovest listed its token as $NBT. $NBT attracted over 2 million users. It attracted over 2 million users. Likewise, In India, the Chingari app launched its token, $GARI.
$GARI got 150 million users from a $70 million pre-launch value to $1 billion. Such high participation signifies the increased focus and possibilities of tokenized assets.
Diversification of Tokenized Assets
Tokenized assets are no longer limited to specific categories of assets. Like Agris Tokens of Argentina, users of agricultural commodities create tokenized stablecoins. These tokenized stablecoins have the same value as the actual trade. Its success has enabled the creation of a token-collateralized loan system for farmers.
Budja also provides fractional ownership services of valuable artworks. ADDX offers equities, bonds, funds, and structured products on digital securities.
Growing Talent Pool
There is a spike in the development activities in the Web3 domain. The number of active developers hit a record high in late 2021, with solid growth in the DeFi segment. The Ethereum network brought more than 300 developers per month to its network. The talent demand rises to meet the need for technology for asset tokenization.
Challenges to Growth
Let’s look at some obstacles facing asset tokenization:
- Regulatory Scrutiny and Uncertainty
Variations in regulation across markets challenge how far tokenization can go. Security threats should have clear definitions. These threats include money laundering, cyber-attacks, and prohibited product or service trades.
Source: BCG Report
Source: BCG Report
- Investor Awareness and Adoption
There is a need to ensure the usefulness of the products. There should also be more campaigns from the regulators to enlighten investors. Investors may take time to adopt it because they use traditional financial systems.
- Technology Maturity
For tokenization, it is necessary to develop the technology stack. We must reduce the risk involved with DLT and platform security for efficiency. We must also reduce the risk involved with smart contract programming.
Source: BCG Report
Investor Acceptance
Asset tokenization is in high demand, but investors must be open to opportunities. Investors in the corporate space have yet to buy the whole idea of tokenization. This is often due to internal policies still needing to recognize digital assets.
Call to Action for Stakeholders
Various stakeholders must take proactive steps towards the financial system. They have to look deep and assess the potential of on-chain asset tokenization.
Traditional Asset Fractionalizers
Some financial institutions are welcoming tokenization with open arms. Auction houses and REITs need to test and scale it. Organizations can invest in fintech and DeFi projects to achieve faster market entry.
On-Chain Tokenization Service Providers
These providers should provide capable managers and ensure they get enough capital. Improving customers’ financial knowledge to offer better responses is also essential.
Providers should also focus on the development of efficient KYC and AML practices. Convincing investors also to fractionalize assets’ value will unlock the necessary capital.
Source: BCG Report
Developers
Developers need to adopt best-practice solutions for scalability and functionality. They also need to define easy-to-implement protocols and construct talent development solutions.
For code quality, developers should get external validation of the smart contract code.
Principal Investors and Issuers
Setting specific limits on investment returns according to the type of assets. Following this method will help avoid crowding out sustainability investments.
Policy Leaders and Regulators
Establishing authorities for DLT and digital assets will ease the issuance of licenses. Implementation of regulations will help create the required tokenization structure.
Conclusion
On-chain asset tokenization provides a unique chance to increase assets’ liquidity. Its adoption and growth trends point to the future of tokenization.
Stakeholders can create a means to make the financial system accessible. They can do this by addressing regulatory issues. On this note, we will keep seeing the potential of asset tokenization.
Disclaimer
The information discussed by Altcoin Buzz is not financial advice. This is for educational, entertainment, and informational purposes only. Any information or strategies are thoughts and opinions relevant to the accepted levels of risk tolerance of the writer/reviewers and their risk tolerance may be different than yours. We are not responsible for any losses that you may incur as a result of any investments directly or indirectly related to the information provided. Bitcoin and other cryptocurrencies are high-risk investments so please do your due diligence. Copyright Altcoin Buzz Pte Ltd.
