Stock tokenization won’t immediately bring a huge benefit to the crypto market, but the benefits could increase if such assets can be better integrated on blockchains, NYDIG says.
“The benefits to networks on which these assets reside, such as Ethereum, are initially small but increase as their access, interoperability and composability increase,” Greg Cipolaro, NYDIG global research chief, said in a note on Friday.
The first benefits will be the transaction fees charged for using tokenized assets, and the blockchain hosting them will “enjoy increasing network effects” for storing them, Cipolaro added.
Tokenizing real-world assets, or RWAs, such as US stocks, has become a hot topic in the crypto industry, with major exchanges including Coinbase and Kraken looking to launch tokenized stock platforms in the US following their success abroad.
Paul Atkins, chairman of the Securities and Exchange Commission, said earlier this month that the U.S. financial system could embrace tokenization within “a few years,” which Cipolaro said shows that “tokenization is likely to be a big trend.”
Paul Atkins spoke to Fox Business earlier in December about tokenized US stocks. Source: Fox Business
“In the future, you could see these RWAs as part of DeFi (composability), either as collateral for loans, as assets for lending, or for trading,” he added. “This will take time as technology develops, infrastructure is built out and rules and regulations evolve.”
Tokenized assets can “vary widely”
Cipolaro noted that creating composable and interoperable tokenized assets is not easy because “their form and function differ greatly” and are hosted on public and non-public networks.
The Canton Network, a non-public blockchain created by the company Digital Asset Holdings, is currently the largest blockchain for tokenized assets with $380 billion, or “91% of the total ‘represented value’ of all RWAs,” Cipolaro explains.
Ethereum, meanwhile, is “by far” the most popular public blockchain for tokenized assets, with $12.1 billion in RWAs deployed, he added.
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“But even on an open, permissionless network like Ethereum, the design of the specific tokenized asset can vary wildly,” Cipolaro said. “These RWAs are often securities, broker-dealers, KYC/investor accreditation, whitelisted wallets, transfer agents and other structures from the traditional financial world.”
He added that while tokenized assets still require traditional financial structures, companies are using blockchain technology for “nearly instantaneous settlement, 24/7 operations, programmatic ownership, transparency, auditability and collateral efficiency.”
“Going forward, as things open up and regulations become more favorable, as Chairman Atkins suggests, access to these assets should become more democratized, and thus these RWAs could enjoy greater reach,” Cipolaro said.
“Investors should pay attention,” he added, “even if the economic impact on traditional cryptocurrencies today is minimal.”
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