Reality check required for tokenization takeoff: Opinion piece
Let's talk tokenization, y'all— but let's get real, this buzzword needs to prove its worth before investors jump on the bandwagon. The asset-tokenization scene is a mess, covering inadequate regulations and institutional disinterest, all whilst sadly turning digital equivalents of traditional assets into boring versions of their former selves.
Why should cryptonatives get hyped about tokenized portfolios on the blockchain? Well, it may sound sexy, but only a small niche of the market is actually into it. For tokenization to truly take off, it needs to win over institutional and retail investors looking to modernize their traditional assets. Bottom line: simply creating digital twins of inefficient traditional products won't cut it.
So, why aren't institutions jumping in on tokenization?* It's fair to say that the industry hasn't yet convinced mainstream investors. Although heavy hitters like BlackRock have expressed interest, adoption is sluggish because the industry has failed to address core investment concerns. Tokenized assets still suffer from a lack of liquidity, difficult trading processes, and their existence in a fragmented regulatory landscape. For traditional investors with substantial portfolios, the complication and doubt are enough to steer them clear of the space entirely—and for some, Bitcoin is still considered a Ponzi scheme.
Educating investors is vital when navigating tokenized assets confidently. Not only that, but we need to ask these traditional investors to make some decisions in the crypto sphere. However, the process is likely to be gradual.
The hard truth about tokenization
Tokenization should surely focus on increasing its practical functionality for investors. As represented by the Boston Consulting Group in a recent white paper, in various scenarios, tokenization of assets could reach trillions of dollars in AUM by 2030. Real value means more liquidity, better assessment options, increased transparency, and trust in a system that can smartly utilize these assets. However, when you hold these assets with major institutions and custodians, your options are extremely limited. Traditionally, assets could only be used as collateral, but the process remains convoluted and restrictive. Tokenization transforms traditional finance by turning static assets into smart contracts, automating financial processes, and providing new use cases not available in traditional finance.
However, we cannot count on the old legacy financial infrastructure: traditional custodians, fund managers, and administrators. They're holding us back. According to the World Economic Forum, tokenization could unlock collateral mobility that has never been possible. But the cost and time-consuming process makes it merely a dream for both institutional and retail investors. It's time to turn this into a reality and commit to delivering real, tangible value to attract long-term adoption.
Time to make some sense
Regulatory clarity remains inconsistent, creating a fragmented market. Jurisdictions like the Hong Kong Monetary Authority and Abu Dhabi Global Market are making proactive strides, but a fragmented global landscape makes compliance a major hurdle. Imagine if you wanted to tokenize an asset in the ADGM only for it to be incompatible with a tokenized asset under the HKMA or trade on a decentralized exchange. Now, think about having to comply with 150 different jurisdictions, each with its own standards and rules. Compliance becomes nearly impossible, and the dream of a seamless financial system dwindles away.
Large financial institutions and service providers are already working to find a way to harmonize a digital asset like tokenization with a regulatory framework. We need push for a global regulatory framework for digital assets, rather than siloed frameworks of regional legislation. Without regulatory alignment, tokenized assets risk being confined to niche markets rather than achieving true global adoption.
Breaking down the barriers to financial democratization
Tokenization shouldn't just be about replicating old financial models; it should create new ways for assets to be utilized, traded, and borrowed against. Tokenization alone is not enough. Assets must be made smarter and deliver tangible value to global investors, regulators, and service providers. Right now, many tokenized investment opportunities still cater only to qualified investors, reinforcing existing financial barriers rather than breaking them down. True democratization means opening up access to retail investors, not just tokenizing assets for institutions.
This industry is still in its infancy, so there's still plenty of time to shape its future. If regulators, jurisdictions, and innovators can align on a proper framework, the tokenization sector could see massive growth by 2030. The future of tokenization depends on moving beyond the hype.
Tokenization is the inevitable future of real estate | OpinionRob Daykin, co-founder of Realize—a leading tokenization platform for real-world assets—spearheads growth, accessibility, and visibility in the evolving digital economy. With over 15 years of experience in fund administration, extensive knowledge of crypto and decentralized finance, and top-tier senior positions at IQ-EQ and State Street Alternative Investment Solutions, Rob excels at bridging traditional finance with cutting-edge blockchain solutions. Daykin is also the co-founder of Nakama Labs—a web3 venture fund and innovation hub specializing in decentralized technologies.
Sources:
- [1] Boston Consulting Group, Deloitte, and ConsenSys, The Physical Asset Tokenization Market (2021). Available online
- [2] Association of Digital Asset Custodians, State of Blockchain 2021. Available online
- [3] Global Blockchain Policy Council, Tokenized Real Assets: A Knowledge Framework for Effective Regulation (2020). Available online
- [4] Accenture, Digital Real Estate: A New Strategy for an Asset Class (2020). Available online
- [5] ILS Analytics, State of Digital Securities (2021). Available online
- To convince mainstream investors, tokenization needs to address core investment concerns such as lack of liquidity, complex trading processes, and fragmented regulations.
- For institutions to jump into tokenization, the industry must create digital assets that offer real value, providing more liquidity, better assessment options, increased transparency, and trust.
- Traditional custodians, fund managers, and administrators are hindering the progress of tokenization, as the cost and time-consuming process makes it a dream for many investors.
- The future of tokenization depends on a global regulatory framework for digital assets, rather than siloed frameworks of regional legislation, to ensure compliance and pave the way for true global adoption.
- True democratization in tokenization means opening up access to retail investors, not just tokenizing assets for institutions, to break down financial barriers.
- Education is crucial in navigating tokenized assets confidently, and the industry should focus on increasing practical functionality for investors, especially in the realm of investing in real estate.
- Metamask, DEX, and other crypto technology platforms can facilitate smarter asset utilization, trading, and borrowing, transforming traditional finance by turning static assets into smart contracts.
- Without regulatory clarity and alignment, tokenized assets risk being confined to niche markets, preventing them from achieving true global adoption and tangible value for long-term investment.
