The concept of tokenization has been around for quite some time, with the idea of ​​translating real-world assets into their digital representations for subsequent sale in the cryptocurrency domain in the form of tokens. By creating such a virtual investment vehicle, companies can tokenize anything from commodities like gold and silver to real estate, opening up opportunities for their sale on platforms in the on-chain environment. The latter offers considerable liquidity entry options, as it is more accessible to retail and non-institutional investors without access to traditional sales venues.

Most importantly, tokenization leverages all the key benefits of blockchain, including transparency, a peer-to-peer basis that does not involve intermediaries, and lower overhead costs. Tokenization is also a powerful instrument to attract liquidity and boost speculation, ultimately increasing the value of the tokenized asset in secondary markets. The peer-to-peer foundation is what makes tokenization more attractive along with blockchain's universal ability to create a digital twin of any asset in the real world. In this material, we will delve into the complexities of asset tokenization in the real world and explore some of the main opportunities that such an option brings to both companies and users.

Tokenization - The Benefits

Fractional ownership is a key tokenization term that has been used for over a decade to mean that a single entire real-world asset can be owned by multiple people who purchase shares of it in tokenized form. This means that a company can sell anything from a piece of art to real estate to multiple people at the same time. Ultimately, the company does not care who or how many people or parties buy an asset, the important thing is to sell it. Tokenization enables this by allowing a large number of smaller investors to acquire shares in a larger property or asset that would otherwise have been inaccessible to them. Tokenization of real-world assets is most commonly associated with stablecoins when it comes to fiat currencies like the US dollar or any other. USDT Tether is a great example of this, which can be successfully translated to other types of currencies or real-world assets. Tokenization is a major driver of digital asset adoption, as real-world assets, or RWAs, are quite expensive and are becoming inaccessible to a growing number of investors due to their localization and sanctions regimes. Blockchain and tokenization erase those barriers and open investment markets to retail investors with small amounts of capital. The Boston Consulting Group forecasts that the tokenized asset market could grow to 16 trillion by 2030. This is based on market estimates and how companies are experimenting with tokenization in the on-chain domain. Although still largely isolated from TradeFi, tokenization may explode with the arrival of Web3.

The Limitations

Although the benefits and prospects of tokenization seem bright, there are a number of serious challenges that prevent its development to the level required for it to become a truly global phenomenon. The main obstacles are actually technical, rather than isolated in the minds of investors. In contrast, investors are eager to explore the possibilities of real-world tokenized assets, but technical limitations such as infrastructure interoperability and blockchain bottlenecks do not allow for mass adoption and deployment. However, recent developments in the blockchain domain allow experts and analysts to predict that these limitations may be overcome in the near future. The fact that companies like Hamilton Lane and JP Morgan are developing tokenized asset projects is a good illustration of such assessments. The ease with which structured instruments and index-based products have been transferred on-chain gives these companies reason to believe that real-world assets will achieve a similar level of popularity and warm reception from investors. Bonds and stocks are the next logical step for tokenization, with commodities like gold, silver, art, real estate, and every other type of asset soon to follow. Use cases for fractionalized artwork ownership are now available and proven to be successful. But the largest market for tokenized asset ownership is the real estate market. Complete digitization and almost instant settlement are the main benefits that will be realized, as they will open the market to a whole new audience of buyers who previously only dreamed of owning a part of a luxury property. Critics and skeptics would claim that the actual use of owning a small fraction of a luxury property is debatable at best, but they are neglecting the main benefit: speculation. Real estate is only gaining momentum and appreciation as an investment asset, meaning tokenized fractions of real estate will reflect that, allowing them to act as carriers of value. This also makes investments more accessible and may result in the explosive growth of the industry, which has suffered significantly as a result of the Covid pandemic and subsequent global crises. Another major hurdle is the issue of regulation, which depends entirely on the governments' stance towards cryptocurrencies. Challenges impeding the rapid adoption of tokenized assets include the risks associated with cryptocurrency fraud and the lack of clear guidelines defining such assets in many jurisdictions. If universal guidelines were introduced, they would launch a truly global scale of real-world asset tokenization at both the institutional and retail investor levels. However, currently, this perspective is distant at best, and most investors will have to deal with localized investments in real-world assets or deal with risk management.

The Future of Tokenization

Almost anything can be tokenized, from real estate and commodities to agricultural goods and merchandise. This opens up huge opportunities for companies to sell their products and services in the Web3 domain to a whole new audience of investors. The progress already being made in the United States at the legislative level aimed at recognizing the status of tokenized assets means that adoption is sure to accelerate. The available forecasts provide valuable insights into the future of real-world tokenized assets, which are currently valued at $300 billion. Projections through 2030 indicate that the market could grow up to $10 trillion, according to Roland Berger, a 40-fold increase from the current value in 2023. The same analysts claim that such estimates are conservative and based on current bearish market statistics. . If the market grows in light of the resolution of global conflicts and the lifting of restrictions, we could see a significant boost in investments directed towards real-world tokenization instruments. Whatever the commodity or digital instrument, the blockchain can digitize it and make it available for sale. Although such a perspective makes blockchain seem more like a big market, rather than a technology capable of being applied in many real-world industries, the fact is that Web3 is the future of real-world industries and blockchain is its foundation.

Source STON.fi