Already, we are seeing big firms (BNY Mellon, JP Morgan, and BlackRock) tout tokenization projects, recognizing the efficiencies they can bring from a payment and settlement perspective. Still, the more significant potential of tokenized investments is their ability to democratize finance and bring broader investment opportunities to the general population through ‘fractionalized’ investments in global opportunities, said Kelly Ye, Head of Research at Decentral Park Capital.
Tokenization is a process of representing real-world assets, such as private equity, real estate, fine art, commodities, and more, as digital tokens on a blockchain. This technology has the potential to revolutionize financial services by providing transparency, liquidity, and efficiency to access alternative investments. Tokenization can open up new possibilities for fractional ownership and liquidity, allowing advisors to present clients with a broader array of investment options.
Large institutions have already started testing tokenization. For instance, KKR and Hamilton Lane both launched tokenized private funds in 2022 with Securitize, a fintech firm specialized in tokenization. Franklin Templeton has launched a tokenized money market fund in 2023, which gathered more than $270 million as of April 2023. Citigroup has forecasted a $4-5 trillion tokenized digital securities market by 2030 in their March 2023 Money, Tokens, and Games report.
Despite all the potential benefits of tokenization, we are still at an early stage of development. Regulatory clarity on the legal status and classification of these tokenized assets is crucial in determining where and how they can be issued and traded. Market infrastructure also needs to be developed to facilitate trading across different platforms.
Cloud giant Amazon delivers a security token platform for financial services companies to build on. Securitize is able to issue and trade tokenized securities in Europe and the US as part of a new pilot program for digital assets. Asia is embracing tokenization; are they leading the way? A McKinsey report explains why the time may be now for tokenization.