Cryptoverse: ‘It’s a knife fight’ as traders get tokenized

Oct. 3 (Reuters) – Bitcoin? This is a bit of old hat, says a group of crypto investors who are betting on blockchain technology to breathe new life into traditional assets.

The “tokenization” market, which issues blockchain-based digital tokens to represent assets ranging from bonds to stocks to real estate, is finally reaching critical mass as crypto prices wait for the next plunge. Maybe.

Major financial firms such as London Stock Exchange Group (LSEG.L), WisdomTree and Mirae Asset Securities have invested in or are in talks to develop token trading and investment platforms over the past year. Franklin Templeton, UBS Asset Management, ABN AMRO (ABNd.AS) and others have launched tokenized versions of assets such as money market funds and green bonds.

Two 2016 EY Parthenon surveys of more than 300 participants found that more than one-third of U.S. institutional investors and nearly two-thirds of high-net-worth investors are planning to invest this year or next. plans to invest in tokenized assets. May.

Colin Butler, global head of institutional capital at blockchain firm Polygon Labs, said it could save large investment firms on transaction costs.

“These cost reduction ideas are very powerful because right now it’s a knife fight for market share and profits,” he said, adding that institutions have spent years researching tokenization and now He added that it will allow them to launch projects with greater peace of mind.

Backers believe that tokenization enables traditional finance to enable more transparent transactions, improve liquidity, and even automate processes through smart contracts (blockchain-based agreements that are automatically settled). It claims that this will reduce costs and settlement times.

Critics, however, point to large gaps in trading infrastructure, a lack of uniform global regulation and continued limited traction with investors. In fact, the actual issuance and value of tokenized traditional assets remains small.

network effect

According to data from Dune Analytics, the market capitalization of public tokenized securities is $345 million, a small fraction of the trillion-strong crypto market. These tokens have gained 2.3% over the past 30 days, lagging Bitcoin’s roughly 10% rise over the same period.

But some are looking to a bigger future. A joint report released by Northern Trust and HSBC earlier this year estimated that between 5% and 10% of all assets will be digitized by 2030.

The idea of ​​tokenization has been around for almost as long as Bitcoin, but the nascent market hasn’t really lived up to the hype. Some market players are now seeing significant progress.

“I think it’s different this time, mainly because now we’re seeing senior-level buy-in from large companies,” said Morgan Krupetsky, head of institutional and capital markets at Ava Labs.

The hurdles remain high, with market participants also pointing out, among other things, the need for a larger trading pool. But there is also optimism.

“In the future, people expect to see network effects improve, with more companies adopting the same platform and making it easier to trade assets,” said Digital Asset Research CEO ( CEO) Doug Schwenk said.

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