When Blackrock’s Larry Fink says tokenisation of assets and securities will revolutionise finance, it’s worth a listen.
Since the early days of blockchain, there has been much talk of the opportunities of tokenising real-world assets (RWA) and “bringing them on chain”. And for good reason.
Blockchains provide an easy, inexpensive, highly accessible platform for securitisation of any asset. Unlike other securitisation platforms, they also bring with them the benefits of DeFi, including immediate settlement, programmability (which can help automate things like trading and compliance), global markets, and composability (which can make it easier to bridge protocols and create innovative new products and services). As we pointed out in a previous post, we believe RWA on-chain could represent a multi-trillion dollar opportunity.
In a recent interview, Larry Fink of Blackrock — whose company has applied for a spot Bitcoin exchange traded fund (ETF) in the US — said: “ETFs was a big revolution for the mutual fund industry … And we do believe that if we can create more tokenisation of assets and securities — and that’s what Bitcoin is — it could revolutionise, again, finance”.
Should Fink be proven right and tokenisation goes mainstream, its positive effect on the world of DeFi could hardly be overstated. In this post we discuss some other noteworthy signals of the mainstreaming of tokenisation we think investors might want to pay attention to.
Real-world asset protocols
Real-world asset tokenisation protocols, like those mentioned above, specialise in the tokenisation of RWAs and the creation of marketplaces to trade them. Many are also serving institutional and/or retail investors outside the crypto bubble.
Maple Finance, for example, is an on-chain marketplace focused exclusively on serving institutional and individual accredited investors with high-quality lending opportunities. Centrifuge is a decentralised platform for structured credit for tokenised RWA, allowing users to easily access financing based on their real-world assets, like invoices, real estate etc., without intermediaries and high fees. Through their tokens, users can also participate in the governance of the platform, something not possible with TradFi platforms.
Growth of real-world assets on DeFi protocol Centrifuge. July 13, 2023, Dune Analytics
Decentralised debt markets
Thanks to these RWA protocols we are seeing the rise of decentralised debt markets, and it’s becoming one of the most significant developments in this space. According to a recent Nansen report, these markets, which involve the issuance of debt tokens, have become the hottest use case for RWA tokenisation, even eclipsing real estate.
As reported by Nansen via its new RWA index, RWA protocols have outperformed Bitcoin and Ethereum this year, and even DeFi blue chips. The top uncollateralised lending protocols for institutions, TrueFi and Maple, have increased by 26.6% and 117.8%, respectively, in 2023. Centrifuge, a real-world asset tokenisation platform, has surged by 32% year to date. In comparison, the gains recorded by the DeFi pulse index in the same period were 13%. Glassnode’s index of DeFi blue-chip tokens has lost 7% since the year’s start.
These markets are of course still quite small compared to traditional debt markets. But they may be harbingers of things to come.
Tokenised “cash on ledger”
For many years now, people have been looking for ways to have fiat money represented on blockchains, sometimes referred to as “cash on ledger”. Stablecoins and CBDCs are among the most well-known attempts at doing this. A less talked about alternative, but potentially as important (if not more so), is tokenising deposits or other representations of cash by private entities like banks. This too seems to be a rising trend.
To provide a few examples: Recently, the Bank of England provided guidance on their views of “deposit tokens” (as well as CBDCs and stablecoins). The Swiss Banking Association is starting a project with a number of Swiss banks to tokenise the franc. The Bank for International Settlements is running a project to test the idea of “digital trade tokens”, programmable stablecoins backed by bank funds and issued on Ethereum, to help address the SME trade finance gap.
Not only is tokenised “cash on ledger” an important use case for tokenisation. Should it catch on it could be a major force in facilitating trading of blockchain-based RWAs and fostering blockchain adoption generally.
Tokenised real estate and private equity
We are also seeing increasing uptake in the tokenisation of traditional assets like real estate or private equity.
RealT, a tokenised real estate marketplace launched in 2019, has seen its total value locked (TVL) increasing from USD 50 million to USD 90 million over the last 12 months. In the private equity space, Hamilton Lane has launched a USD 2.1 billion direct equity fund, a portion of which is being tokenised and offered to investors via Securitize on Polygon.
Both of these are excellent examples of how tokenisation marries real-world assets with the advantages of DeFi. In RealT, tokenisation allows for easy fractional ownership of real estate properties. In the Hamilton Lane case, tokenisation allows for much smaller ticket sizes — USD 20 thousand minimum as opposed to the usual USD five million — opening the door to private equity to a far wider range of investors.
The shape of things to come
There is little doubt that the tokenisation of RWAs is a significant trend and a milestone on the road to broad adoption of DeFi. What is interesting about the present moment is the number of mainstream players who are realising the same thing.
We began this post with Larry Fink of Blackrock. We will end with a quote from Matteo Andreeto of State Street: “We will be looking at the tokenisation of ETFs … And then the tokenisation of private assets. That for me will be game-changing.”
Other articles you may like:
- A Zero-Knowledge Proof Era: A rising trend in the making?
- Crypto’s evolving trust paradigm
- Connecting DeFi and Real-World Asset Tokenization: A Multi-Trillion Opportunity
- Flight to Safety with Quality: Why crypto winter has opened up opportunities for traditional banks
- Crypto’s Cascading Effects: Investors are turning to those they trust
- Same risk, same rules? How to not overregulate the crypto market
- ETH Withdrawals: Shanghai upgrade and beyond
- Unleashing blockchain’s full potential: Leveraging network effects
- CeDeFi: The Crypto Ecosystem’s Swiss Army Knife
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