Asset tokenization: what stands behind one of the main trends of blockchain in 2023–2024

The blockchain industry continues to evolve at a rapid pace, and one of the main trends expected to shape the landscape over the next two to three years is the rise of tokenized securities, fractional ownership, and tokenized real-world assets (RWA). These innovative concepts are gaining traction as they offer exciting possibilities for unlocking liquidity, democratizing investments, and revolutionizing traditional financial systems. Let’s talk about this in more detail.

The key development blockers for the industry in 2022

Despite the rapid growth and innovation in the blockchain industry, there were several development blockers that hindered the industry’s progress in 2022. Here are the key reasons:

1. Lack of mature infrastructure forces projects to develop much more and much more complex things that are not directly related to the projects but block their development and proper operation.
2. Lack of clear legislative framework. Governments of countries are very bureaucratic when it comes to new legislative policy and cautious when it comes to any interaction with blockchain.
3. Lack of significant secondary market liquidity. To make it attractive, there must always be healthy secondary market opportunities.

Overcoming these challenges and finding solutions will be crucial for the industry’s continued growth and advancement in the future. Let’s provide some forecasts based on our experience of where the blockchain industry will develop in the short term.

Asset tokenization: how digital tokens are changing the game

Tokenization technology is a phenomenon that turns everything around us into digital forms. Art, real estate, oil supply contracts — everything can be tokenized and stored on the blockchain. It might seem like something new and unstable, but upon understanding what it is, we can conclude that tokenization actually stimulates the development and growth of the industry, while bureaucratic legal regulations in governments are the ones that hinder it.

Tokenization of RWA (real-world assets) provides numerous opportunities for potentially faster trading on the secondary market, transparency of compliance of tokenized assets, and the sources of their origin. These tokenized assets can be represented globally instead of the local options currently used in the market. Currently, the global adoption of this trend is hindered only by outdated legislation that is not adapted to the new format. Tokenization of RWA is undoubtedly one of “the next big things” due to the liquidity it brings to the market (which is currently absent).

Among the examples of RWA or securities tokenization, the simplest to understand is the tokenization of fund portfolios. For instance, Hamilton Lane, a leading global investment firm with assets totaling $823.9B, is making a portion of its Equity Opportunities Fund V available to individual investors through a new additional tokenized fund, which they tokenized through the Securitize platform.

The main advantage of Securitize is that the company allows accredited investors to whitelist their wallets and gain access to tokenized securities, while Securitize verifies their accreditation. This enabled Hamilton Lane to have a global impact with their tokenized fund.

The tokenized fund offers people the opportunity to access a historically high-performing asset class of direct investments with minimal investments, reduced on average from $5M dollars to just $20K.

Today, the infrastructure for tokenization is becoming increasingly mature through whitelist services such as Securitize and Stoker, custodian companies like Firebase, proof-of-reserve products like those offered by Chainlink, and AML platforms (such as Chainalysis and the Global Ledger Protocol) that ensure liquidity sources.

What can it lead to?

These structures, in which there is reliable custody that holds assets, such as an auditing firm (in our scenario, Chainlink’s proof-of-reserve [verifies digital asset collateralization held by crypto businesses, helping bring greater transparency to depositors via public attestations and independent audits]), and a whitelisting service that processes sellers, buyers, and assets, have made it completely legal for regulatory authorities. In addition, such structures allow institutional players to understand how to withdraw income earned from these assets in the form of dividends or royalties in a transparent manner for authorities.

Nowadays, legislation in many countries is catching up, and in two to three years, we will see a certain breakthrough in tokenization for RWA.

Adoption takes time, but user experience is improving, so when certain acceptable criteria are reached for ordinary accredited investors and organizations, there will be a huge number of users and liquidity.

Ultimately, all of this will develop into markets where everything is tokenized as proof of ownership. Where you can buy and sell physical objects as tokens and have a divided ownership right over them, it makes sense.

Conclusion

The rise of tokenized securities, fractional ownership, and tokenized real-world assets is expected to be a significant trend in the blockchain industry over the next two to three years. These concepts have the potential to reshape traditional financial systems, democratize investments, and unlock new opportunities for investors. To stay informed and explore the possibilities of these trends, it is crucial to delve deeper into the topic and seek reliable sources of information. The blockchain industry is constantly evolving, and these emerging trends are likely to shape the future of finance and investment.

Andrii Lazorenko, co-founder and CEO of IdeaSoft