4min read
Published on: Apr 29, 2024
#Blockchain
One of the most crucial but often overlooked segments in the blockchain economy is the tokenisation of real-world assets (RWAs).
In fact, 2023 was the year that witnessed the world take the realm of tokenised RWA quite seriously, moving beyond stablecoins and NFTs.
As per DeFiLlama, the total value locked (TVL) of RWAs grew from barely $750 million in January 2023 to a humongous $6 billion in April 2024.
Source: DefiLlama
Market experts believe the market could grow to as much as $10 trillion by 2030.
As tokenisation is taking the world by storm, it is important to understand the phenomenon of tokenised RWAs as the asset class gains currency in the market.
The tokenisation of RWAs is the process of representing physical, tangible assets on a blockchain (or any other distributed ledger technology).
Some of the most popular assets that are being tokenised include:
Real Estate: Real estate is divided into smaller and affordable units and represented with virtual tokens. This process, known as fractional ownership, lets more people access the ownership of a high-value property.
The tokenised RWAs are stored on a blockchain or a distributed ledger so that these tokens remain immutable and secure.
These tokens are the virtual proof of ownership of the assets your own.
The assets can be traded between two parties or between several parties in fractions.
The primary motive behind the exercise is to create a virtual investment vehicle on a blockchain network where physical assets (RWAs) can be traded, transferred, or exchanged on-chain.
In addition, the endeavour also makes way for increased liquidity of comparatively illiquid assets and makes the tokenised RWAs more accessible, tradable, transferrable and manageable.
The tokenisation of RWAs allows for greater liquidity, transparency, and accessibility. It is also seen as a medium to modernise and democratise conventional financial markets.
Tokenised RWAs offer these benefits:
If we look at the growth of tokenised RWAs in 2023, the segment grew by over 85% in terms of TVL from $757 million on 1st January to $5.65 billion on 31st December.
The figure rested a little above $6 billion at the time of writing.
Since 2023, several established financial powerhouses have embraced the realm of tokenising RWAs.
In October, Mastercard announced a Central Bank Digital Currency (CBDC) tokenisation project for the Australian market. The project would allow users to participate in commerce across multiple blockchains.
In November, the Monetary Authority of Singapore (MAS) announced it was beginning tests around tokenisation use cases. The enterprise is a part of Project Guardian, which also includes Japan, the United Kingdom, and Switzerland.
Major TradFi giants such as Citi, Fidelity International, BNY Mellon, J.P. Morgan, Apollo, Goldman Sachs, and Franklin Templeton are deeply involved in the enterprise.
In fact, the pilot tests to assess tokenisation use cases already got initiated in November.
As long as tokenisation of RWAs is concerned, the following metrics illustrate the conditions in the market:
Stablecoins, cryptocurrencies pegged to national currencies such as USD, will gain currency among major economies. The market capitalisation of stablecoins stood at $159 billion at the time of writing.
Tokenised private credit offered over DeFi lending protocols is going to come to the rescue of small and medium enterprises (SMEs).
The market cap of the segment stood at $613 million at the time of writing.
We just had a look at the current metrics in the asset tokenisation sector. Let's now look at what the current year has in store.
We are well past the first quarter of 2024, and it is a just the right time to ask what the year has in store for tokenised RWAs.
In October 2023, the Munich-based consultancy firm Roland Berger published a report that assessed the ongoing market trends around RWA tokenisation and tried predicting 2024 trends.
"The tokenisation of real-world assets isn't a thing of the future; it's happening now. We estimate that the total market for tokenisation by conservative estimates will significantly exceed USD 10 trillion by 2030," said Pierre Samaties, a Partner at Roland Berger.
Source: Roland Berger
When the report was published, the market size of tokenised assets was a bare $0.4 trillion. It would require 27x growth of the segment within a span of seven years to reach the target of $10 billion in 2030.
Real estate, debt, and investment funds are among the top 3 tokenised assets.
In addition, we are also likely to see growing tokenisation of infrastructure units, collectibles, art, in-game assets, NFTs, and data.
The report highlighted how tokenised assets can help the unbanked masses access financial services, including previously illiquid assets with high value.
So far, we have seen only stablecoins and NFTs to gain popularity among masses. But we are likely to see other types of RWAs such as financial instruments, real estate, precious metals, art etc. to emerge out of the shadows in 2024.
This article is for informational purposes only and not intended as investment or financial advice. It contains opinions and speculations that are subject to change without notice.
The author and publisher disclaim any liability for decisions made based on the content of this article. Readers are advised to conduct their own research and consult a financial advisor before making investment decisions.
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