Source: Forbes
The success of ETFs over their relatively short lifetime is a testament to the power of retail investors. From 2003 to 2022, the ETF market grew from $200 billion to $9.6 trillion, expanding stock investing from the preserve of besuited city traders to a mass market of individuals eager to generate better returns on their savings. As a low-cost, user-friendly instrument, ETFs have made stock market investing accessible, affordable, and convenient.
Now, tokenization of real-world assets (RWAs) could be set to do for crypto what ETFs have done for stocks. Institutional interest in crypto is at an all-time high, thanks partly to the Bitcoin ETF approvals driving market sentiment. However, while some institutions anticipate consumer demand for crypto-related financial services, many believe that RWAs are the biggest opportunity in digital assets.
Last year, asset manager 21.co predicted that the tokenization market could scale to $10 trillion by 2030 across all asset classes. However, as the market develops, more clarity is emerging around which opportunities are seen as having the most potential. What’s becoming clear is that with ETFs having already blown the doors off the stock markets, RWA tokenization is focused on asset classes that are either illiquid or have remained closed to retail investors.
Real estate is perhaps the most illiquid asset and one that’s increasingly closed off to all but the wealthiest investors. Real estate tokenization can lower the barrier to investing, providing a step onto the property ladder by fractionalizing property. However, while the market shows significant promise, navigating the heavy regulations surrounding real estate transactions has proven challenging. Travis Hill, vice chair of the US Federal Deposit Insurance Corporation, recently highlighted the opportunities of tokenization in real estate and urged regulators to take a more pragmatic approach.
But regulation is notoriously slow, and innovators are famously agile. Spying the opportunity, Blocksquare resolved to find a compliant way to sell real estate, and last year, successfully executed an on-chain real estate transaction that satisfies the legal procedures required off-chain. The move makes the project a pioneer in notarized real estate tokenization and provides a blueprint for regulators seeking to understand how such a transaction works in practice.
Unlocking alternative investments
While real estate is becoming more unattainable, alternative investments such as private equity and private credit have long been almost completely inaccessible to the mainstream – mainly because they are too operationally cumbersome to offer to individuals. Bain&Co now estimates that tokenization could unlock a $400 billion opportunity in alternatives by making investing “intuitive, seamless, and digitally native.” These sentiments tie in with the goals of MANTRA OM 0.0%, a Layer 1 blockchain delivering RWA tokenization to institutions – including assets such as VC funds.
The project counts financial inclusion among its strategic goals, targeting the MENA and Asia regions for the opportunity to make investing more accessible in areas with substantial wealth inequality.
Corporate debts, traditionally offering high yields to institutions with loose purse strings, are another investment opportunity long denied to retail customers, with a market worth $7.5 trillion in 2022 for US non-financial companies alone. DeFi protocol Soil offers a chance to tap into this lucrative potential via a compliant platform facilitating stablecoin lending with high fixed-income yields generated by real-world corporate borrowers. The project also aims to make borrowing more accessible for SMEs that may otherwise struggle to access credit under conditions imposed by traditional financial institutions.
Bitcoin BTC 0.0% may be enjoying the bullish momentum right now, but crypto markets are notoriously fickle. Institutions and enterprises building bridges from the digital asset sphere into real-world opportunities look to stand the best chance of sustaining long-term value that transcends market volatility.