The tokenization of real world assets (RWA) has been gathering significant momentum in 2023, as blue chip organisations reveal their strategies for transitioning from POC to full-scale. A recent article in Forbes, titled “From PoC To Production: FIs Lead The Way With Tokenized Real World Assets'' reported how top tier players from JP Morgan, BNY Mellon, Standard Chartered, BlackRock, Invesco, UBS, BNP Paribas, Deutsche Bank, Goldman Sachs, State Street, SocGen, ABN Ambro, Citi, and Mastercard “laid bare their playbooks for moving from proof of concept (POC) to production applications” at Digital Assets Week (DAW23), London. (Source :https://www.forbes.com/sites/lawrencewintermeyer/2023/11/16/from-poc-to-production-fis-lead-theway-with-tokenized-real-world-assets/?sh=1b038eea1bb5)

Understanding the future direction of RWA tokenization is crucial as it continues to reshape the financial industry. Multiple reports offer valuable insights into this transformative trend. By analyzing these reports, one can gain a deeper understanding of the factors driving RWA tokenization and potential implications for the industry.

In a recent Roland Berger market report, asset tokenization was projected to “grow to become a market worth at least USD 10 trillion by 2030, representing a 40-fold increase in the value of tokenized assets from 2022 to 2030. The report stated that this would mark a significant rise from the current value of around USD 300 billion”. (Source: https://www.rolandberger.com/en/Insights/Publications/Tokenization-of-real-world-assets-unlocking-a-new-era-of-ownership-trading.html)

(Source - https://www.rolandberger.com/en/Insights/Publications/Tokenization-of-real-world-assets-unlocking-a-new-eraof-ownership-trading.html)

Whilst, a paper published by PWC estimated that by 2030 approximately 5% to 10% of all assets will be digital, considering that global assets are expected to rise to $145.4 trillion by 2025. (Source: https://www.pwc.com/jg/en/investment-management/awm_revolution_report.pdf

(Source - https://www.pwc.com/jg/en/publications/asset-and-wealth-management-revolution.html#download)

It is worth mentioning that, as per a joint survey by Celent and BNY Mellon, “91% of institutional investors were interested in putting their money into tokenized assets, with 97% agreeing that tokenization stands to revolutionize the realm of asset management”. (Source : https://cointelegraph.com/news/token-adoption-real-world-assets-blockchain)

Similarly, two surveys conducted by EY-Parthenon in May were reported to have projected that over a third of institutional investors in the U.S. and nearly two-thirds of high-net-worth investors were gearing up to venture into tokenized assets within the coming year. (Source: https://www.reuters.com/technology/cryptoverse-its-knife-fight-traders-get-tokenized-2023-10-03/)

These reports signal a transformative wave in the investment landscape, marking a substantial embrace of tokenization strategies by a large section of the financial community. With a variety of assets being tokenized, the total value of tokenized real-world assets was reported to have reached an all-time high of $2.75 billion in August.

Industry leaders believe that the shift towards asset tokenization is rooted in the unsustainable yields in decentralized finance (DeFi), which led to the collapse of many major crypto projects in 2022. This may have prompted investors to seek more sustainable, real yields — such as the ones available with tokenized RWAs. (Source : https://cointelegraph.com/news/token-adoption-real-world-assets-blockchain)

Additionally, Michael Hsu the acting chief of the U.S Office of the Comptroller of the Currency, in his statement at the DC Fintech Week event in Washington reportedly said "Tokenization is focused on solving an actual problem, and that problem is settlement,". (Source: https://www.coindesk.com/policy/2023/11/07/us-banking-watchdog-hsu-says-tokenization-promising-but-crypto-full-of-fraud/)

RWA tokenization offers numerous advantages, which are briefly explained below. (Source: https://www.forbes.com/sites/amorsexton/2023/10/06/4-reasons-banks-are-embracing-the-tokenization-of-real-world-assets/?sh=3a516795c734)

The tokenization of assets offers a more efficient settlement process with unparalleled speed. By enabling embedded transactional data and automated tasks such as interest calculations, coupled with the advantage of atomic (instant) settlement on the blockchain ledger, assets can now securely trade within minutes. This translates into significant operational advantages for global businesses, addressing the challenges associated with the traditional settlement lifecycle and freeing assets from the constraints of lengthy processes.

Tokenization facilitates both asset servicing and transactional functions, digitizing entire processes with a 'single source of truth' for transaction data. This not only significantly diminishes reconciliation overhead but also eliminates errors stemming from the involvement of multiple intermediaries. The programmability of tokens takes this a step further, enabling the execution of smart contracts that autonomously perform predefined functions such as calculations, compliance checks, controls, and disbursements.

Traditionally, owning a fraction of assets would involve complicated legal setups, which can be expensive and limit the number of people who can join in, making it hard to buy or sell quickly. However, tokenized ownership simplifies this process, making it easier for more people to join in.

This opens up opportunities for new investors, breaking down barriers that usually keep certain markets, like Real Estate or Venture Capital, exclusive to only a few.

By making these investments more accessible, tokenization gives the required impetus to the overall economy by accelerating the capital inflow. A clear example of this was seen in April 2023 when the market value of tokenized gold surpassed $1 billion.

Tokenization also enhances financial fluidity. Breaking free from the constraints of traditional markets, these tokens trade round the clock on cryptocurrency exchanges, offering traders unprecedented freedom. Moreover, the inherent transparency of blockchains gives the required boost to investor confidence, slashing the risk of fraud and ownership conflicts.

According to the World Bank, as many as 1.7 billion people do not currently have access to financial services. For instance, they do not have a bank account, credit card, or other financial products that allow them to save, borrow, or invest money. Clearly, the far-reaching consequences of the lack of access to financial services cannot be ignored. The negative impact of inaccessible financial services could easily lead to overall increased vulnerability to poverty and financial hardships stagnating the overall economy at large. Roland Berger reports that “tokenization can be one of the solutions for this problem, as it enables access to investments for many people who are currently unbanked by reducing barriers to entry”. (Source: https://www.rolandberger.com/en/Insights/Publications/Tokenization-of-real-world-assets-unlocking-a-new-era-of-ownership-trading.html)

To address this issue, Blade Labs has positioned itself to provide Tokenization as a Service (TaaS) and Platform as a Service (PaaS) to increase financial accessibility. Furthermore, we have taken a step ahead to offer appropriate infrastructure for go-to-market support to enterprises. Our vision is to create a future where financial inclusion is a reality for everyone.

Additionally, Blade provides cutting-edge technology infrastructure to safeguard and manage private keys, empowering control over asset ownership. Our goal is to enable enterprises to operate in a T+0 operational world where trades are executed and settled simultaneously, and the distributed ledger serves as a single source of data for all parties. According to our CEO, Sami Mian, distributed ledgers provide instant settlement capabilities to regulated assets, eliminating settlement risk and trade reconciliation costs that traditionally cost billions of dollars. (Source: https://www.linkedin.com/posts/samimian_contact-us-activity-7127952315730268160-E10s/?utm_sou rce=share&utm_medium=member_android)

While transitioning to a T+0 world requires modifications to the existing legacy tech stack, the benefits of doing so will quickly outweigh the costs.

As we move forward in this dynamic market, Blade not only embraces the advantages of tokenization but also leads the way in providing cutting-edge solutions to enterprises to operate and flourish in the world of digital finance.