Tokenisation of global illiquid assets, such as real estate, high-value art, public
infrastructure and private equity, is predicted to be a $16trillion business opportunity by 2030, according to a new report.
The Relevance of On-Chain Asset Tokenisation in ‘Crypto Winter’ report from global consulting firm BCG and ADDX, one of Asia’s largest private market exchanges, forecasts that asset tokenisation growth comes as the crypto winter is prompting capital to focus on more viable blockchain use cases.
Asset tokenisation refers to the creation of tokens on a blockchain to represent an asset, in order to facilitate more efficient transactions.
Sumit Kumar, managing director and partner, BCG South East Asia, explains: “The crypto winter has tightened the purse strings for the overall blockchain sector. Some Web3 companies will be adversely impacted. But projects that can demonstrate inherent value, scalability and the potential to enhance the traditional financial ecosystem could actually benefit against this new backdrop.
“Our analysis shows asset tokenisation projects could emerge strongly. They are more likely to demonstrate viability in this capital-constrained environment and are therefore better positioned to attract the attention of investors, who continue to have a significant store of dry powder to deploy.
“This report projects that even using a conservative methodology, asset tokenisation would be a $16.1trillion business opportunity by 2030. In a best-case scenario, that estimate goes up to $68trillion.”
Findings in the report
According to the report, favourable stakeholder sentiment, recognition among monetary authorities could boost the share of tokenised assets to 10 per cent of global GDP by end of decade.
The projected growth in tokenisation of assets is driven by demand from a wide range of investors for greater access to private markets. Assets being fractionalised and tokenised can reduce minimum investment sizes from millions of dollars to just thousands of dollars.
Previously investments of this kind were only available to institutions. Tokenised investments can also be effectively ‘borderless’, allowing investors around the world to invest in markets they were previously unable to access.
The report by BCG and ADDX lists five indications that asset tokenisation may be on the cusp of wide global adoption:
- increased trading volume in tokenised assets
- strengthening stakeholder sentiment across many countries
- recognition among monetary authorities and regulators
- more asset classes being tokenised
- a growing pool of active developer talent in the blockchain space
Globally, growth in tokenised assets is expected in real estate, equities, bonds and investment funds, as well as less traditional assets such as car fleets and patents.
The report also makes recommendations to current and potential stakeholders.
- Financial institutions might consider finding ways to pilot and deploy asset tokenisation projects by upgrading existing business models, rather than looking to replace them.
- Developers could design standard architectures and protocols to ensure an easier, more seamless ‘on-ramp’ to the tokenisation world.
- Companies should also work to improve financial literacy among clients to help them understand tokenisation as well as the underlying asset classes it provides access to.
- Regulators could establish sandboxes to promote innovation and set clear rules around tokenisation, while monitoring how tokenization might impact investor and consumer protection and market integrity, the report said.
Oi-Yee Choo, CEO, ADDX, said: “Asset prices can only rise to their true economic value if the barriers to investor participation and ownership transfer can be lowered. For years, the technology for overcoming those barriers was expensive and therefore available only on public exchanges. Blockchain changes the game because it can be applied cost effectively to private markets and alternative assets, where investors are fewer in number, albeit wealthier, and products are more bespoke.
“The result should set our hearts racing: assets can be liquid for both public and private markets. The potential economic benefits are considerable. Recognising assets for what they are truly worth should translate into more investments and better capital allocation, which will in turn generate economic growth and jobs. The real winner here is the real economy.”