While critics wrote off much of the initial hype surrounding the tokenized real-world asset (RWA) market, the sector has been on a tear over the past
While critics wrote off much of the initial hype surrounding the tokenized real-world asset (RWA) market, the sector has been on a tear over the past year or so. In fact, Boston Consulting Group expects the tokenization of global illiquid assets to be a $16 trillion industry by the end of the decade.
A variety of asset categories are actively being tokenized and garnering investments, with recent data suggesting that the total value of tokenized real-world assets reached an all-time high of $2.75 billion in August. And while the metric has slipped since then, it still stands at around a respectable $2.49 billion as of Sept. 30.
As per a joint survey by research and advisory firm Celent and American banking behemoth BNY Mellon, 91% of institutional investors are interested in putting their money into tokenized assets, with 97% agreeing that tokenization stands to revolutionize the realm of asset management.
Matthijs de Vries, co-founder of AllianceBlock — a firm building a decentralized tokenized market — told Cointelegraph that these types of statistics give a glimpse into the impact that institutional-grade investments have on the industry.
“This trend is expected to result in exponential growth in the tokenized RWA industry, particularly as more liquidity flows into the space. This will lead to a more sustainable bull market with less capital flight at its peak,” he added.
Why the sudden spike in interest?
From the outside looking in, the tokenization of RWAs seems to be gaining momentum due to improved regulatory clarity in specific jurisdictions (such as Switzerland) and successful pilot projects.
De Vries said the unsustainable yields in decentralized finance (DeFi), which led to the collapse of many major crypto projects in 2022, have prompted investors to seek sustainable, real yields — such as the ones available with tokenized RWAs.
He elaborated: “Investors are now looking for transparent explanations of where these yields come from, making tokenized RWAs more attractive due to their clear yield sources and increased recognition from traditional players.”
“Investors have started to realize that if you can’t easily explain where the yield comes from, it’s probably going to collapse at some point. With tokenized RWAs, the source of the yield can be easily explained to crypto natives and new participants.”
Real estate is one area in which tokenization has had a significant impact. As things stand, it is the largest asset class in the world, with an estimated $613 trillion value in 2023.
Between Q1 and Q3 2023, the value of on-chain real estate grew by 102%, or approximately $90 million.
The aggregate value of assets tokenized, which in some cases represent fractionalized claims on real estate, stands at $178 million as of Sept. 30. RealT, an issuer of tokenized real estate, holds the lion’s share of the market. Tangible, a fellow issuer of real estate-centric RWAs, witnessed the most growth among its peers. The total value of Tangible’s tokens soared from a mere $100,000 to an impressive $64 million over the first three quarters of 2023.
Bernard Lau, co-founder and CEO of blockchain-based real estate investment company Labs Group, told Cointelegraph that tokenizing real estate is probably the best use for this technology today. Due to its stability and tangible asset value, Lau believes real estate stands out from others as a very solid investment.
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“Previously, many investors from lower economic backgrounds found themselves left out of the real estate game due to the entry barrier that was just too high,” he said. “And since many found themselves out of this equation, they turned to investing in stocks and bonds. However, now that individuals can invest in fractions of houses, buildings or even resorts, more people can participate, fueling the growth we observe in the market.”
Beyond property investments
While real estate has undoubtedly been a popular use case for tokenization, de Vries believes this space could face numerous challenges moving forward — primarily due to differing laws and registries across different jurisdictions. In his view, tokenization translates more seamlessly within asset classes like exclusive collectibles, diamonds, luxury watches, classic cars, securities and even carbon credits.
Moreover, tokenization’s influence can also be actively felt within the realm of traditional finance, especially in relation to popular instruments such as bonds, stocks and exchange-traded funds (ETFs). Adam Levi, co-founder of Backed — a platform for tokenized real-world assets — told Cointelegraph that this transition is a natural one:
“The market needs stable yields. In a bear market, fixed-income products provide this. Globally, interest rates are up, and…
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