INDIA, 14 SEPTEMBER 2022 – A newly-published report by global consulting firm BCG and ADDX, the digital exchange for private markets, forecasts that asset tokenization will expand into a US$16.1 trillion business opportunity by 2030. This growth comes as the crypto winter is prompting capital to focus on more viable blockchain use cases.
Titled “Relevance of on-chain asset tokenization in ‘crypto winter’”[i], the report published today was authored by Rajaram Suresh, Sumit Kumar, Aaditya Kaul from global management consulting firm BCG and Darius Liu from private market exchange ADDX.
Assets being fractionalized and tokenized on platforms such as ADDX can reduce minimum investment sizes from millions of dollars to just thousands of dollars. Previously investments of this kind were only available to institutions. Tokenized investments can also be effectively ‘borderless’, allowing investors around the world to invest in markets they were previously unable to access.
Asset tokenization refers to the creation of tokens on a blockchain to represent an asset to facilitate more efficient transactions. Historically, many of the world’s assets have been held in illiquid formats, with past studies estimating the share of illiquid assets at more than 50% of overall assets. Illiquid assets face challenges such as imperfect price discovery and trading discounts compared to liquid assets, the report said. Tokenization creates liquidity by making it easier for the assets to be distributed and traded among investors.
The report, launched by BCG and ADDX lists five indications that asset tokenization may be on the cusp of widespread global adoption:
- increased trading volume in tokenized assets
- strengthening stakeholder sentiment across many countries
- recognition among monetary authorities and regulators
- more asset classes being tokenized[ii]
- a growing pool of active developer talent in the blockchain space
While the concept of asset fractionalization has been around for some time, its impact has hitherto been felt mainly in the public markets, with structures such as fractional shares, ETFs[iii] and public REITs[iv]. In recent years, there has been a significant pivot with the emergence of asset tokenization players that apply blockchain technology to private markets and alternative assets.
Figure 1: Business Opportunity of Asset Tokenization (2022 to 2030)
Rajaram Suresh from Boston Consulting Group said: “The crypto winter has tightened the purse strings for the overall blockchain sector. Some Web3 companies will be adversely impacted. But projects that can demonstrate inherent value, scalability and the potential to enhance the traditional financial ecosystem could actually benefit against this new backdrop. Globally, growth in tokenized assets is expected in real estate, equities, bonds and investment funds, as well as less traditional assets such as car fleets and patents[v]. With a 50-fold increase predicted between 2022 and 2030, from US$310 billion to US$16.1 trillion, tokenized assets are expected to make up 10% of global GDP by the end of the decade. We’ve aimed to articulate specific imperatives for incumbent institutions, capital issuers, investors and developers to be able to unlock this growth”
