Tokenization, the process of converting real-world assets into blockchain-based tokens, is said to carry numerous benefits. These include operational efficiencies and improved liquidity and accessibility, according to a research report by Bernstein. The potential size of the tokenization opportunity is massive, with estimates reaching up to $5 trillion over the next five years. The leading forces behind this growth include stablecoins, central bank digital currencies (CBDCs), private market funds, securities, and real estate.
Currency tokenization, through stablecoins and CBDCs, is expected to see application in on-chain deposits and payments. The report predicts that approximately 2% of the global money supply could be tokenized over the next half-decade. That’s a staggering $3 trillion. However, this opportunity is not without its challenges. Japan’s cryptocurrency exchanges are pressing regulators to relax margin trading restrictions on popular cryptocurrencies such as Bitcoin. Exchanges in the country were once able to offer leverage of up to 25 times the principal capital, leading to trading volumes as high as $500 billion annually in 2020 and 2021.
However, in early 2022, Japanese regulators limited crypto exchanges to providing leverage of only twice the principal, resulting in substantial drops in trading volumes during that year. The Japan Virtual and Crypto Assets Exchange Association, a self-regulated body of local exchanges, contends that these restrictions obstruct market growth and deter potential new participants.
In light of recent loosening in monetary conditions, Bitcoin has shown little change in trade value. China’s first benchmark lending rates cut in 10 months failed to significantly impact traditional markets, leaving Bitcoin relatively unaffected. This cut contrasts with the ongoing monetary tightening in western economies and follows recent economic reports suggesting that the world’s second-largest economy is losing steam and verging on deflation.
Finally, Circle’s USD Coin (USDC) has surpassed Tether (USDT) as the most liquid stablecoin. Analysts at Paris-based Kaiko explain that today, USDC holds the highest market depth for its “price discovery” markets, which include fiat and stablecoin pairs such as USDC-USDT, USDC-EUR, and USDC-USD. To degrade the value of USDC by 1%, a total sale of $38 million would be necessary.
Overall, the potential for tokenization over the next five years is promising. However, regulatory challenges and market volatility could have a significant impact on its realization. Leveraging the positive aspects while addressing potential obstacles could pave the way for a thriving tokenized future.
Source: Coindesk
