Citi, the investment bank, is forecasting that tokenization of real-world assets will be the next “killer use case” in the crypto world, with the market predicted to grow to between $4 trillion to $5 trillion by 2030. According to the bank’s analysts, this represents an 80-fold increase from the current value of real-world assets locked on blockchain platforms. The report, titled “Money, Tokens and Games”, suggests that private equity and venture capital funds will become the most tokenized asset class, capturing 10% of its total addressable market, with real estate coming in next at 7.5%.
The report outlines that blockchain tokenization will be superior to traditional financial infrastructure due to its technological superiority and the investment opportunities it provides in private markets. Private equity and venture capital funds will likely see faster adoption rates because of their favourable liquidity, transparency and fractionalization properties, the bank said. Citi said that blockchain tokenization negates the need for expensive reconciliation, prevents settlement failures, and makes tedious operations ever more efficient.
“Once this intermediate, skeuomorphic ‘straddle’ state is crossed, the new disruptive technology breaks free from the old and ideally directionally trends towards the envisioned end-state,” the report notes. The investment bank did, however, acknowledge that there are drawbacks at present, such as a lack of legal and regulatory framework, challenges with building the infrastructure, and obtaining a widely followed set of interoperability standards.
Despite these challenges, several private equity firms have already set up tokenized versions of their funds on platforms like Securitize, Provenance Blockchain and ADDX. The bank predicts the private equity market to become the most “tokenized” asset class because it is more liquid and can be fractionalized. Of the up to $5 trillion tokenized, the bank estimates $1.9 trillion will come in the form of debt, $1.5 trillion from real estate, $0.7 trillion from private equity and venture capital and between $0.5-1 trillion from securities.
The tokenization of assets on blockchain technology is a growing trend, with the benefits of fractionalization, increased liquidity, and transparency being key drivers for adoption. As the infrastructure and regulatory frameworks mature, it is likely that more industries will adopt this technology. However, as with any new technology, there will be challenges and growing pains along the way. Nevertheless, Citi is confident that the ecosystem will mature as the technology develops, leading to a more efficient and accessible financial asset infrastructure globally.