According to Deutsche Bank, tokenization is expected to generate over $16 trillion in value by 2030. Goldman Sachs and BNY Mellon are forging a path right through this projection by launching tokenized money-market funds.
Add to that the implications of legislation like the GENIUS Act, which is a landmark legal milestone for USD-backed payment stablecoins, and it’s safe to say that the tokenization market is poised for only great things.
If you’re interested in getting a piece of the pie, many companies are already relying on blockchain development services to make a dent in the niche, especially as it takes over global markets in four special ways.
What is Asset Tokenization?
Asset tokenization involves the creation of tokens or digital representations of real-world assets using blockchain technology. A rising trend in blockchain development, it accords digital certificates of ownership or claims to a share of an asset that are programmable, traceable, and transferable from peer to peer.
How does it work? Quite simply, actually. Tokenization:
- Encrypts sensitive data (like asset ownership) by generating a unique token, such as a random string of characters, to protect the original data
- Stores the protected data in a token vault and uses the token in its place for transactions; and
- Maps the token back to the original data to complete the processing
Tokens can also be used for recurring or subsequent transactions without re-authentications.
Because of this, tokenization brings about benefits that can radically change global markets.
How Tokenization Will Impact Global Markets
Tokenization unlocks rewards that go beyond traditional finance. For the world, it will lead to:
1. Easier access to financial markets
In the past, high-value assets like real estate, art, and private equity were only available to institutional or high-net-worth investors. But tokenization enables fractional ownership of these assets, which means they now come with lower investment minimums. As a result, they become more available to more investors.
Tokenization, through blockchain, also enables global and borderless access. No matter where you are in the world, you can buy and sell tokens on digital platforms without needing to contend with geographical limitations. Or cumbersome paperwork.
2. Faster settlements
Settlements for traditional securities typically take around two days. This is because they go through multiple reconciliation processes (clearinghouses, banks, custodians, etc.) and intermediaries.
But using blockchain app development services for tokenization, assets are recorded on blockchain distributed ledgers, which means:
- Near-instantaneous transfers
- No or fewer intermediaries
- Automated processes via smart contracts
- Round-the-clock operation
With faster settlements, users gain more liquidity and lower counterparty risks, so there’s more time to invest with more confidence and security.
3. Cheaper and more efficient transactions
Another global impact that can come from tokenization is the rise of cheaper and more efficient transactions. According to the World Economic Forum, tokenization can incur up to $20B in savings from global financial infrastructure operational costs because of automation and disintermediation.
Blockchain transactions occur peer-to-peer or through decentralized platforms, which eliminates middleman fees and overheads. Similarly, they can be automated with programmable smart contracts, so the need for manual labor (and its risks) is also reduced.
For investors who are interested in timezone-limited markets, tokenized assets are equipped for instant settlement and continuous trading. This can significantly cut down delays while curbing operational costs. And since blockchain operates from a single source of truth, ledger disputes and reconciliation time are limited.
Finally, when it comes to currency conversion and multi-jurisdictional regulations, tokenization is also a boon. Tokens and platforms feature rules already embedded into them, which reduces friction in cross-border transactions.
4. More transparency and trust
Tokenization also has the potential to fix the growing transparency and trust problem in global finance. With blockchain’s immutable and decentralized infrastructure, it’s easier to validate transactions, gain visibility into everything, and reduce fraud.
In terms of regulation, inspectors and auditors can also access real-time data simultaneously, which can streamline compliance and oversight protocols.
Moving Forward with Tokenization
If you’re intending to commission blockchain development service providers to start your journey with tokenized assets, you can cash in early as these technologies gain broader global adoption.
To make sure that you make the most out of them, be proactive about staying updated on clear legal frameworks that govern their use. Also, modernize legacy systems where necessary to ensure cohesion and interoperability throughout your workflows. And build security early into your infrastructure to address potential custodial risks and deliver operational resilience.
