Growing interest from institutional and high-net-worth investors
Asset tokenisation is emerging as a major trend in the global financial sector. According to the study conducted by Boston Consulting Group (BCG)In another recent report, the market for tokenised illiquid assets is projected to reach $16 trillion globally by 2030, demonstrating the potential of this technology to change the way we value and invest in assets. Furthermore, in another recent report by consultancy EY, 61% of institutional and high net worth (HNW) investors plan to invest in tokenised assets by the end of 2024, highlighting the growing interest and acceptance of this emerging technology.
Leaders in the financial sector have not overlooked this phenomenon. Figures such as Larry FinkCEO of BlackRockhave stated that "blockchain technology may represent the next financial frontier", while the "blockchain is the next financial frontier". Jamie DimonCEO of JP MorganThe bank has acknowledged that "decentralised finance and blockchain are real" and that its bank uses this technology to "move tokenised US dollar deposits".
Sergio ErmottiCEO of UBSThe European Commission has also stated that distributed ledger technology "would allow financial institutions to operate and transact more cheaply and efficiently". These endorsements from major players in the financial sector reflect the growing relevance of tokenisation globally.
The benefits of tokenisation
But what exactly is asset tokenisation and why is it generating so much interest? Simply put, tokenisation is the representation of ownership or rights to a physical or digital asset through a cryptographic token. This allows those assets to be fractioned, distributed and traded more efficiently and liquidly through digital platforms.
Some of the main benefits offered by tokenisation, according to investors surveyed by EY, are:
- Increased liquidity: By allowing for more agile trading and exchange of tokenised assets, liquidity is significantly improved compared to traditional assets.
- Reduced transaction costs: Transactions with tokenised assets typically have lower associated costs, such as commissions, taxes or brokerage fees.
- Improved performance and returns: The increased efficiency and liquidity of tokenised assets can translate into better returns for investors.
- Increased transparency: The blockchain technology underlying tokenisation enables a transparent and auditable record of transactions, providing greater trust and traceability.
Key sectors for tokenisation
These benefits have piqued the interest of a wide range of investors, both institutional and high net worth (HNW). According to an EY report, 77% of HNW investors and 55% of institutional investors already invest, plan to invest or want to learn more about tokenised assets.
But in which specific sectors is the greatest interest in tokenisation concentrated? The data presented in the Global Digital Finance Tokenization Forum reveal some of the markets with the greatest potential:
Derivatives market
With an estimated size of 1.2 quadrillion dollarsThe derivatives market is one of the markets that can benefit most from tokenisation, as it allows for more agile and efficient trading of these financial instruments.
Real estate market
Valued at 379 billionThe real estate sector is also emerging as a key area for tokenisation, as it would facilitate the divisibility, access and liquidity of real estate assets.
Fund market
With an estimated size of 145 billionThe investment funds market is another market that could see a significant impact from tokenisation, allowing for greater accessibility and efficiency in the trading of units.
Beyond these large sectors, investors are also showing increasing interest in the tokenisation of alternative assets, such as hedge funds, commodities, infrastructure, private debt, real estate and private equity.
Accelerated adoption
Projections point to an accelerated adoption of tokenisation in the coming years. According to the EY report, it is estimated that by 2026 institutional investors will allocate 5.6% of their portfolios to tokenised assets, while HNWs will invest 8.6%.
These figures reflect exponential growth, considering that today the cryptoasset market, considered one of the most innovative and disruptive, has a market capitalisation of just $1.8 trillion, which represents only 0.9% of the size of the derivatives market.
Drivers and challenges
Against this backdrop, it is not surprising that asset tokenisation has been dubbed the "next financial frontier" by industry leaders such as Larry Fink. This emerging technology promises to profoundly transform the way financial assets are traded, exchanged and managed globally.
Several experts agree that the rise of decentralised finance (DeFi) and the increasing maturity of blockchain technologies have been crucial in driving the adoption of tokenisation. In addition, the COVID-19 pandemic has also played an accelerating role, highlighting the importance of digitisation and the need for more agile and efficient solutions in the financial sector.
However, the mass adoption of tokenisation also faces several challenges that need to be addressed. One of the main ones is the need for a clear and internationally harmonised regulatory framework that provides legal certainty to market players. Another important challenge is the development of robust and scalable technological infrastructures, as well as increased investor education and awareness.
Despite these challenges, asset tokenisation is emerging as one of the most promising and disruptive trends in the global financial sector. With the backing of major industry leaders and growing interest from institutional and high net worth investors, the technology is likely to continue to gain traction in the coming years, redefining the way we think about, trade and manage financial assets.