According to a recent report, the total size of tokenized assets worldwide is expected to grow by more than 50,000% and reach a staggering $16 trillion by 2030. Increasing interest in more private and illiquid markets will likely fuel the growth of asset tokenization in the years to come.
Tokenized assets can free up illiquid assets
There is a huge market for tokenized assets as they help inject liquidity into illiquid markets, according to a new report from global consulting firm BCG and digital private markets exchange ADDX. “Much of the world’s wealth today is tied up in illiquid assets,” the report said.
Citing a 1997 survey, the report notes that more than 56% of taxpayers’ assets with net worth between $600,000 and $1 million are illiquid. This means that these assets generally trade at a discount to liquid assets and are characterized by high stock-to-flow ratios (relative scarcity), lower trading volumes and imperfect pricing.
“For example, illiquid physical art assets have a stock-to-flow ratio of 28.3 as opposed to 1.11 for liquid real estate investment trusts (REITs),” the report said, adding that other key examples of illiquid assets real estate (including equity), natural resources, land, commodities, public infrastructure, fine arts, computer infrastructure, private equity and more.
In addition, several other asset classes that are only accessible to high-quality investors are also considered illiquid assets. These may include pre-IPO stocks, hedge funds, infrastructure projects, commodities and alternative investment vehicles, and personal loans, the report said.
The main reasons for asset illiquidity include limited affordability, inability to fractionate inherent benefits, lack of information, restricted access, being restricted to elite cliques, complex user pathways for access (e.g. KYC and setting up payments across multiple platforms without a single interface). for clients) and lack of scaled technological solutions to unlock liquidity in such assets.
However, tokenized assets can solve the majority of these problems, bringing liquidity to traditionally illiquid markets and providing access to these asset classes to a wider range of investors by lowering the barriers to entry.
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Tokenized assets are projected to account for 10% of global GDP by 2030
Tokenized assets are expected to grow into a $16 trillion business opportunity by 2030, an increase of more than 50,000% from $310 billion in 2022. This will account for 10% of global GDP by the end of the decade, the report says.
The report cited five indicators as evidence of an increase in on-chain asset tokenization. First, the global tokenized asset market surpassed $2.3 billion in 2021 and is expected to reach $5.6 billion by 2026, showing increased trading volume in tokenized assets.
Additionally, there has been strong retail adoption, according to a 2021 Deloitte survey. Other potential indicators include recognition of on-chain tokenization by monetary authorities and regulators, expanding list of tokenized asset classes, and a growing pool of active blockchain developer talent.
Still, the BCG-ADDX report noted that there are some risks that may slow the growth of blockchain-based asset tokenization. The first challenge is related to regulators and their different approaches to tokenized assets. Awareness and acceptance are two other risks to mitigate.
“Obscure protocols to manage the infighting between TradFis and market disintermediation caused by on-chain tokenization providers due to market-making model disruptions,” the report said, adding that there are also risks associated with platforms, including security and DLT risks.
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About the author
Ruholamin Haqshanas is an accomplished crypto and financial journalist with over two years of writing experience in the field. He has a solid understanding of various segments of the FinTech space, including the decentralized iteration of financial systems (DeFi) and the emerging non-fungible tokens (NFTs) market. He is an active user of digital assets for remittances.