A revolution is underway in the financial world as real-world assets, from stocks and real estate to commodities and fine art, are increasingly being digitised through blockchain technology. This process, known as tokenisation of data, is shaking up traditional markets and opening new trade and investment possibilities for businesses and investors alike.
Tokenisation is the process of converting ownership rights in traditionally illiquid assets – hard-to-trade assets – into digital tokens recorded on a blockchain, which is a decentralised ledger maintained by a network of computers. This enables fractional ownership and allows these assets to be traded more easily and efficiently, similar to liquid assets like stocks or cryptocurrencies.
In 2024, the global tokenisation market capitalization (cap) was estimated at $186 billion, according to a report by the Tokenized Asset Coalition. Based on analysis by multinational management consulting firm McKinsey & Company, this market could reach around $2 trillion by 2030.
This is a conservative estimate, as research from Boston Consulting Group estimates that the market cap of tokenised illiquid assets could reach a whopping $16 trillion by 2030, representing 10% of global GDP.
This increasingly popular method of turning illiquid assets into more easily tradable and storable liquid assets is shaking up both the blockchain and traditional finance spaces, as well as proving a game-changer for many industries and investors.
With this in mind, let’s unpack what blockchain tokenisation means, how it’s already reshaping our relationship to traditional assets, and how regulators and authorities are dealing with it.
What is tokenisation and how does it work?
For the uninitiated, a “blockchain” is a digital ledger that securely records data across a network of distributed and linked nodes, or “blocks.” The ledger is often decentralised meaning – in theory – no single person or group controls it, and that once data is added it cannot be easily changed.
Blockchain tokenisation is the process of converting ownership rights of an assets which have traditionally existed as physical or centralised electronic records, into digital tokens on the blockchain.
Essentially, tokenisation means that traditional assets, such as securities (stocks, bonds, ETFs), real estate, and commodities (gold, oil, art, collectibles), can be bought, sold, held and traded on a blockchain network.
The reason for tokenisation’s booming popularity is that it comes with a number of advantages for the asset in question, as well as for those wanting to trade in said asset.
Advantages of tokenisation
The first and most obvious advantage is enhanced liquidity. As mentioned, tokenisation can transform traditionally illiquid assets into liquid asset, making them easier to trade.
Tokenised assets also generally allow for fractional ownership, meaning investors can purchase fractions of a whole asset. This opens up the asset class to a broader range of investors.
For example, if a property owner has not been able to sell their home to one seller for their desired price, they could convert the asset into hundreds of tokens and sell fractions of the house to numerous investors who may want to bet on the property market in that location but can’t afford a whole property.
Another benefit is increased accessibility and financial inclusion. Tokenised assets can increase global accessibility in commerce and trade, as digital tokens can break down geographical barriers to traditional investments, widening global investor pools.
Historically inaccessible asset classes such as high-end real estate and fine art, formerly the domain of the ultra-wealthy, can be made more globally accessible, with ordinary people able to access these previously out of reach markets through common tools like smart phones.
Putting assets on the blockchain also allows them to make use of the technology’s inherent benefits, specifically transparency, immutability and security.
There are many different blockchains out there, each with slightly different characteristics in terms of block size, decentralisation, and stability, but they all rely on some form of distributed ledger technology (DLT) – though implementations vary in consensus, governance, and features.
Blockchain technology adds a layer of protection for tokenised assets, making it more difficult for bad actors to tamper with assets and transactions, and providing an accurate record of ownership.
Finally, tokenisation can bring with it improved cost efficiency and savings.
A blockchain doesn’t require middlemen, clearinghouses, or other intermediaries to process transactions. This lack of intermediaries means transactions can normally be processed within a few minutes, or faster.
Traditional bank transfer times could take far longer, for example, if a person wanted to send money to a relative overseas, it could take up to three business days or longer. In contrast, blockchains can incorporate so-called “smart contracts” to automate many aspects of the settlement process. These smart contracts are programs deployed on the blockchain that self-execute when specific, agreed-upon conditions are met, often enabling near real-time execution without the need for intermediaries.
According to the Global Financial Marketing Association (GFMA), a trade association for the securities and financial markets industry, smart contracts and automated processes in different areas could result in estimated annual global infrastructure operational cost savings of ~$15-20 billion.
Shorter settlement cycles can also mean improved liquidity, enhanced market efficiency and lower systemic risk.
These various benefits of tokenisation are available to a vast range of real-world assets, as the versatility of the process means that virtually any asset can be tokenised.
A use case that exemplifies tokenisation’s versatility is for the fine wine market.
Digital wine
One company exploring the possibilities of tokenising luxury goods is dVIN labs, a California-based tech firm that is leveraging blockchain innovations to enhance authentication, traceability, and consumer engagement in the luxury wine sector.
The company recently announced the development of ‘Digital Cork NFTs,’ which act as a decentralised proof of ownership for fine wines. This digital certification creates a transparent and immutable record of ownership and provenance, tracking the journey of a bottle from vineyard to consumer.
Through tokenisation, the Digital Cork NFT is able to integrate the traditional wine market with the anti-counterfeiting measures and price transparency afforded by blockchain’s distributed and immutable ledger, transforming fine wine from a consumable item into a tradeable asset.
As explained by dVIN co-founder David Garrett: “Digital Cork is a unique digital token on the blockchain that represents a specific physical wine bottle. But it’s far more than just a digital certificate – it’s a comprehensive, immutable record of that bottle’s entire existence.”
Thus, tokenisation has the possibility of opening up the $33 billion fine wine market to a whole new world of investors, traders and connoisseurs, benefitting wineries, importers, merchant, collectors and consumers.
Tokenisation regulation
The rapid development of tokenised assets and their effect on aging markets has naturally left governments and regulators around the globe racing to keep up.
From a regulatory perspective, the key questions around tokenisation are whether the token effectively represents its claim, whether transfers of tokens will effectively transfer the legal rights that they claim to represent, and whether there is an existing market infrastructure to support their use.
Governments and regulators are actively grappling with these questions and coming up with varying responses.
In the United States, the Securities and Exchange Commission (SEC) has previously – under its former chairman Gary Gensler – taken an aggressive stance on digital assets, classifying many tokenised assets as securities, and subjecting them to the same rules and regulations to which traditional asset classes are subject, irrespective of the unique qualities of blockchain technology.
This includes requirements related to registration, disclosure, custody, and investor protection, as well as ensuring that token issuers provide adequate information to investors, maintain proper compliance frameworks, and use qualified custodians for digital assets.
Blockchain-based projects may struggle to meet some of these obligations, for a number of reasons: due to a lack of centralised control, making it hard to identify accountable parties for SEC compliance; token functionality may evolve over time, complicating classification; and pseudonymity could put assets that utilise blockchain in conflict with traditional disclosure, registration, and investor protection requirements.
However, in January, the SEC has begun to take on a much more digital asset-friendly approach, which is likely to see a lighter touch when it comes to regulating tokenised assets.
In contrast, the European Union’s Markets in Crypto-Assets Regulation (MiCA), the full provisions of which came into force December 2024, created a comprehensive and tailored legal framework for digital assets.
The regulation does not directly address the tokenisation of real-world asset, however MiCA and the European Securities and Markets Authority (ESMA) – the body tasked with implementing the regulations – made clear that the process of tokenisation of financial instruments “should not affect the classification of such assets” and that tokenised financial instruments should continue to be considered as financial instruments for all regulatory purposes.
It’s likely that many tokens representing ownership in physical assets may be treated as financial instruments and thus fall outside MiCA, to be covered by traditional financial regulation, such as MiFID II.
However, as part of MiCA, the EU initiated the ‘European Blockchain and DLT Regulatory Sandbox’, to help provide legal certainty for decentralised technological solutions, including blockchain, by identifying deployment obstacles from a legal and regulatory perspective. A number of companies involved in the tokenisation of real-world assets are already part of the sandbox.
Meanwhile, countries like Singapore and Switzerland moved quickly to offer clear regulatory pathways for tokenised assets and position themselves as pioneers in the space, and the United Kingdom has been exploring integrating tokenisation into existing rules since 2023, when it first allowed tokenisation for investment funds.
Tokenomics
In its 2023 blueprint for the future monetary system, the Bank for International Settlements (BIS) – an international financial institution made up of central banks – described tokenisation as “the next logical step in digital recordkeeping and asset transfer.”
Such predictions – coming from the most ‘legacy’ of legacy finance institutions – are why more and more businesses and asset classes are turning to tokenisation and blockchain technology.
Whether its real estate, securities or a vintage bottle of Châteauneuf-du-Pape, tokenisation is revolutionising the way the market works – seemingly for the better – and ever more assets are reaping the benefits blockchain can provide in terms of transparency, immutability, security and efficiency.
With governments and regulators gradually catching up and getting on board with developments, tokenised blockchain assets are becoming a cornerstone of the market, as well as the digital landscape.
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