A Bank of America report noted that the tokenised gold market surpassed a milestone figure of $1bn in 2023. This surge in value shows how asset tokenisation is spreading through global markets. According to the Boston Consulting Group, tokenisation of real-world assets is set to become a $16tn industry by 2030.
Tokenisation is the process of placing the ownership of tangible assets – including equities, bonds, precious metals, investment funds and an ever-increasing array of financial instruments – on blockchain ledgers as digital assets. This methodology offers the convenience of buying and selling assets around the clock, because the transactions do not involve traditional brokers.
It also unlocks significant liquidity from many of the world’s most valuable and illiquid asset classes. That’s why Bank of America sees the tokenisation of real-world assets, such as commodities, currencies and equities, as a “key driver of digital asset adoption.” Similarly, BNY Mellon released a report in 2021 that said 72 per cent of global institutional asset managers planned to develop solutions for tokenisation.
Tokenisation aids flexibility and liquidity
A range of large banks and companies have begun using tokenised versions of currencies to complete transactions. JPMorgan executed its first live trade using digital tokens for Japanese yen and Singapore dollars on the Polygon blockchain in November 2022. In January 2023, the State of California announced a pilot with blockchain network Tezos as part of its new DMV identification programme. And property technology companies are exploring the tokenisation of real estate on the XRP Ledger.
The process of tokenisation comes with a raft of upgrades to assets as a class that branches across industries. “Liquidity is first and foremost. Holders can enjoy all the value of directly held assets with the flexibility and liquidity of derivatives,” explains Jasmine Cooper, Senior Product Manager at enterprise crypto solutions provider Ripple. “Transaction costs can be much lower than with traditional investments, while tokenised assets provide unrestricted access to global markets.” In fact, a 2023 survey by Ripple of over 1,700 global finance professionals found that 72 per cent expect to explore tokenisation as a means of driving innovation by 2026.
