The rise in Treasury bond yields from 2022 has given a major boost to the tokenization of real-world assets.
The chain’s total real-world asset value is $118.6 billion, according to Fundstrat.
“It is becoming increasingly likely that blockchains can become the back-end infrastructure for almost any asset class.”
The stunning rise in Treasury yields since 2022 has given a major boost to the tokenization of real-world assets.
With US Treasuries recently paying 5%, investment firms like Franklin Templeton have issued more government securities on the blockchain.
“Rising interest rates over the past year have been big,” Tom Couture, an analyst at Fundstrat, told Insider, noting that yields in decentralized finance have previously been much higher than for US bonds. “But obviously over the past year and a half rates have gone up and you’re getting a risk-free 5% on US Treasuries. So demand has gone up.”
And it’s not just about vaults. There is a growing momentum around packaging commodity and investment currencies into tokens and adding them to the blockchain.
Right now, the chain’s total real-world asset value is $118.6 billion, according to Fundstrat. But experts say that number is expected to explode.
The Boston Consulting Group offered what it called a “very conservative” prognosis of $16 trillion by 2030, with a bullish scenario at $68 trillion.
That’s still far from the total market value of real-world assets, which Fundstrat estimates at more than $992 trillion.
But that’s where the big banks come in. In October, JPMorgan launched its tokenized collateral network — a system that allowed BlackRock to tokenize one of its money market funds and transfer it to Barclays in a derivatives trade.
And global banking network SWIFT is also building a blockchain-based financial transaction system with technology company Chainlink.
Benefits of tokenization
To be sure, tokenization is not new. ETFs and REITs are earlier examples of bundling – or tokenizing – assets.
But the tokenization of real-world assets onto the blockchain is a newer trend that is gaining momentum. This is because investors see many benefits.
First, it helps the asset become much more liquid. When an asset is tokenized, it allows for fractionalization – dividing that token into smaller parts – which improves accessibility.
Also, a token on the blockchain can be traded 24 hours a day instead of seven and a half hours on a typical exchange. Blockchain stores also have faster transaction speeds.
“It is becoming increasingly likely that blockchains can become the back-end infrastructure for almost any asset class,” Couture wrote in a recent Fundstrat note.
Obstacles to tokenization
One of the reasons the tokenization trend hasn’t taken off more is that the market is very fragmented, according to Lee Bratcher, president of the Texas Blockchain Council.
For example, tokenized government securities are available on various platforms instead of one centralized exchange.
“What we really need to happen for real-world asset tokenization to take off is for an entity that has the necessary licenses to actually become a national stock exchange like CME for commodities or Nasdaq for stocks,” he said.
Bratcher said he is not aware of efforts to achieve that, but he sees a national exchange being formed in three years.
Whenever this happens, it could mark the next step in the evolution of finance.
“It’s a huge paradigm shift in how funding is facilitated,” Fundstrat’s Couture said. “At first you had analog, lots of paper. Then we moved into the digital age with computers and excel and digital ledgers. I think this is probably the next step where you have everything on transparent blockchain rails.”
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