The world of cryptocurrency is blurring lines with the massive $20 trillion global financial service sector thanks to the concept of tokenizing real-world assets. The concept refers to the transformation of tangible or intangible real-world assets into virtual investment vehicles on the blockchain. This recognition of the power and scope of blockchain technology is seeing entities not only from the crypto world but also from Wall Street, excited about the efficiency and liquidity it can bring.
Tokenization, from the initial stages of an exciting idea in the crypto world, is potentially gearing to enter the mainstream financial domain. Everything from buildings to gold bars could find a representative token on the blockchain. This relatively new concept enjoys the advantage of receiving limited regulatory scrutiny. Jeff Wilser, a Coindesk contributor, reports from his interviews with startup CEOs, financial advisers, and blockchain experts that the tokenization of stocks might initially be novelty. However, once it demonstrates its efficiency and affordability, he suggests it could change trading on Wall Street in unimaginable ways. Stocks could be traded round the clock, much like cryptocurrency.
However, Wilser also subtly warns us to not jump on the bandwagon blindly. He points out that while tokenization sounds transparent and risk-free theoretically, it has its potential pitfalls. He cites the example of investors of Terra to drive home the point.
On the other hand, Enrico Rubboli of Mintlayer believes that for decentralized finance (DeFi) platforms to scale up, they must attract institutions ready to trade tokenized bonds, equities, debts, and physical assets like gold, real estate, and art. He wonders if the way forward is a union of traditional finance (TradFi) and DeFi. He believes that DeFi protocols have already demonstrated their worth in digital asset markets and their efficacy is so attractive that traditional financial institutions are studying their potential.
Despite perceived lawless and volatility in automated and decentralized asset trading, there seems to be growing consensus that the traditional finance sector can’t ignore the potential benefits of blockchain any longer.
Take the example of Ondo’s OUSG token, one of the largest on-chain tokenized Treasury products. In just seven months of its inception, it has managed to gather $134 million assets under management on Ethereum. This trend of increasing tokenized U.S. Treasuries suggests adoption in the movement to tokenize real-world assets is growing.
From this broad perspective, tokenization represents an opportunity that might be too significant to ignore. Yet, one cannot outrightly overlook the risks inherent in it. The real question is – are we ready for the prime time it promises? Only time can answer that for us.
Source: Coindesk
