In the wake of high-profile collapses of FTX, Signature Bank, Silvergate Bank and others, financial industry participants are stepping back and only pursuing projects that pose the least amount of risk to their businesses. The next step will be recognising the best opportunities to deliver exceptional utility and value for everyday consumers via blockchain technology, while avoiding unreasonably volatile asset classes and providers with opaque disclosures and poor management.
Focusing on digital asset use cases that institutions and their customers find favourable will be critical in fostering consumer confidence. As confidence improves, others will begin to see the everyday benefits of the technology in helping to optimise an aging and inefficient infrastructure.
While upheaval may have temporarily chilled momentum of the digital asset industry, bear markets historically have produced ideal conditions for businesses to refocus their innovation efforts by breaking away from hype and returning to the basics.
Cultivating use cases in preparation for the next bull market could synergistically affect the ecosystem and provide clarity on an effective way forward.
The cost of waiting is high
It would be understandable for some risk-averse companies to take a more deliberate approach and wait for the current so-called ‘crypto winter’ (when prices contract and remain low for an extended period) to thaw before putting the wheels of wholesale innovation in motion. However, companies choosing to delay innovation efforts until that time could potentially be left behind as other market participants act more quickly.
Many larger enterprises understand this, using the market downturn to develop compliant solutions and seeking potential partners to build sensible business offerings that meet regulatory guardrails. One of the most intriguing blockchain hotspots emerging is the tokenisation of key real-world assets (RWA) such as dollars, real estate, antiques, fine art and precious metals including gold.
BY 2030 THE WORLD ECONOMIC FORUM ESTIMATES THAT THE TOKENISATION OF ASSETS WILL MAKE UP NEARLY 10% OF GLOBAL GDP
Stablecoins and the potential for tokenised assets
In the case of dollars, US dollar-backed stablecoins represent the first tokenised real-world asset to gain widespread adoption. Stablecoins have demonstrated the potential benefits of tokenisation as they make access to dollars easier, offer instant settlement and are available 24/7. They can act as a gateway between legacy and new financial market infrastructures in many ways.
Enterprises can unlock significant business opportunities by putting RWA on a blockchain. Moreover, traders and institutions are discovering more reasons to embrace tokenised assets every month. Bank of America reports that the tokenised gold market surpassed $1 billion in value in March 2023.
In the current consumer protection-centric atmosphere, tokenised RWAs are great launchpads for ‘post-crypto winter’ innovation. Today, the tokenisation of RWA accounts for only 0.4% of global GDP. By 2030, the World Economic Forum estimates that the tokenisation of assets will make up nearly 10% of global GDP. Thus, enterprise investors of all shapes and sizes are already lining up to take advantage of this massive opportunity.
Institutions could and should be drawn to tokenised RWA because they lower barriers to entry for a broad population of investors who previously could not trade in commodities such as gold. In the future, we will see this economic inclusion meet the ease of digital trading across asset classes, including gold, real estate, fine art and even shares in the stock market – transacting at the speed of the internet and held in a secure digital vault otherwise known as a digital wallet. More people with access to more investment opportunities can unlock immense amounts of liquid wealth.
Tokenising RWAs is a blockchain business model that works
It is easy to see why, in the wake of a ‘crypto winter’, blockchain businesses are viewing the tokenisation of RWAs as a golden opportunity to deliver practical and accessible solutions to the market. The days of crypto with no tangible value outperforming solid companies with reliable cash flows are a thing of the past.
There are many reasons why someone might consider tokenised gold. Here are just three examples:
- Liquidity: Unlike physical gold, which can be difficult to sell quickly and may require costly storage, tokenised gold can be easily traded on digital asset exchanges, making it more liquid.
- Transparency: Tokenised gold backed by actual gold stored in vaults provides greater transparency and assurance for owners.
- Accessibility: Tokenised gold is accessible to anyone with an internet connection and digital wallet, making it more accessible to a wider range of investors.
Strong use cases such as gold tokenisation will shape the industry’s future and create opportunities to grow the market and bring more value to established gold market participants.
Tokenised gold and other RWA offerings will demonstrate a movement toward stability for the nascent blockchain financial industry, helping to distance it from bad actors and the rampant speculation that has sullied its reputation. Technological, regulatory and educational impediments remain for digital assets to become a staple of the financial system. Still, RWA tokenisation – beginning with gold – is likely to be a major part of how the industry can move beyond this crypto winter and into the future of finance.
The Tokenised Commodities Council
The Tokenised Commodities Council (TCC) is a not-for-profit trade association with the mission to educate the financial services industry on the benefits of tokenised commodities. TCC strives to establish tokenised commodities as safe, accessible, and desirable digital assets for broad institutional and consumer adoption, while promoting fair and sustainable industry practices. Proponents of tokenised commodities, which peg digital tokens to assets in the precious metals, natural resources, energy, livestock, and agriculture spaces, emphasise their price stability and additional liquidity. Tokenised commodities hold the real-world value of hard assets but feature the benefits of crypto. These assets can be transacted globally, 24/7 and are freed from the constraints of legacy markets built upon outdated infrastructure.