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I launched this blog in 1995. Since then, we have published 1603 articles. It's all free and means a lot of work in my spare time. I enjoy sharing knowledge and experiences with you.

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Next Multi-Trillion Dollar Crypto Opportunity

Asset tokenization will be 10% of 2030's global GDP, but ⋯

Ignacio de GREGORIO

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Asset tokenization will be 10% of 2030’s global GDP, but how?

Just one of Crypto’s future applications, by itself, could represent a total market value of 10% of global GDP which is, being more specific, a 16 trillion dollar market according to BCG.

And this is an opportunity too important for you to not pay attention. You know how this works. Crypto is all about opportunity. To “make it” in this space you have to be vigilant of what’s going on around you now, and potentially two years from now. As Daniel Goleman, the famous Harvard professor, explained in his book “Focus,” truly successful people are capable of going beyond what their eyes can see by having a systemic view of their job, investments, and life. A systemic view is being capable to foresee how things are going to evolve over the following years and capitalizing on that knowledge early so that the returns of your actions are truly life-changing. See what others can’t see, and you will earn what others can’t. Sadly, being able to find such opportunities is hard. There isn’t a cheat sheet or framework to consistently detect these opportunities, let alone profit from them.

The goal of this story is not only to inform you, but incentivize you to take action now, and present you with what probably is Crypto’s most important application until now, asset tokenization; it not only will transform the financial markets, it could change your life.

Asset tokenization is “the miracle” of financial markets 🔗

What is so fascinating about asset tokenization?

To better understand the grandiose importance asset tokenization is going to have in financial markets, we first need to understand what the hell is wrong with actual financial markets. Financial markets are like a high-stakes poker game. You and I can’t participate, as the entry ticket to those assets is higher than yours and your next three generations’ net worth combined. Our job in society is to provide liquidity to financial markets so that people in the “big leagues” can literally gamble with it while accessing investments you can’t even dream of.

It’s not that those investments aren’t visible, is just that how the system is made up you don’t have the financial capacity to commit to such investments. You are seeing a gold train leave the station from behind the turnstile, albeit knowing it’s made of gold, but still having to see it leave.

Another golden opportunity missed.

This trend is particularly clear when it comes to illiquid assets.

Illiquid assets are literally inaccessible 🔗

When people think about investing, the usual comes up: Stocks, bonds, even index funds. For ordinary investors, 99% of them will have, with various allocation percentages depending on the person, these assets:

  • Stocks
  • Bonds
  • Index funds
  • Crypto

That’s it.

But the truth is there are dozens of other great investments that the richest people invest in. Art, luxury items, Real estate, commodities, computing infrastructure like data centers, pre-IPOs, Venture Capital, etc.

What? Are rich people actually investing in some or all of these assets?

That’s the thing. They can, but you certainly can’t. The average ticket for these assets on whole is too high. Fine art is sold in the tens of millions, computing software can reach millions per server rack, with real estate you already know without me explaining, etc. You can’t buy these items because they are simply too expensive.

But what if now, finally, those assets will be available to invest in? Look no further than asset tokenization, breaking assets into smaller parts that you can, thus, invest in.

But wait, I am already buying fractionalized Apple stocks! 🔗

Indeed, you’re right. Breaking assets into smaller parts to make them accessible is by no means something new, it’s called asset fractionalization. By fractionalizing expensive assets, you don’t need to invest in the whole asset, you can buy a part of it, and earn the proportional return that asset makes eventually (or loss, of course).

  • You can buy fractionalized stocks in almost any broker nowadays.
  • You can buy fractionalized real estate through investment vehicles known as REITs.
  • You can buy index funds, thereby “buying” the entire market.

In fact, these investments are pretty solid in general.

But if this is already being done, what does Crypto bring to the table?

Sadly, asset fractionalization has a catch. It only works with high-tech, extremely developed markets like those of stocks, bonds, or real estate.

But what about other illiquid assets that are highly manual, hard to trace, opaque, and that tend to have high overhead — costs?

Actual fractionalization can’t deal with those complex assets, which remain unreachable for humble investors. Consequently, ordinary investors like you and I are missing multi-trillion opportunities due to the lack of technologies that can make that possible. Until now.

Asset tokenization makes unreachable assets accessible to you 🔗

Let’s say you want to invest in wine. Wine production is an extremely traditional industry — like any other agricultural activity, basically. Hence, the vast majority of times your only way to access this investment is by buying land and committing a considerable amount of investment each year to produce the actual wine.

These include:

  • Local workers
  • Fertilizer
  • Machinery
  • Oil for the machinery
  • Insurance on the land (agriculture is very risky as it depends heavily on the weather. Unexpected bad weather can destroy your crops for the year, so having insurance is mandatory )

And many others.

In simple terms, it’s simply not an option to fractionalize this type of asset, thus making it impossible to invest for you as an investor unless you have huge capital to invest in farmland and can commit the necessary time to make the investment actually profitable.

Asset tokenization represents the solution to the problem.

Asset tokenization takes the already existing asset fractionalization and stores it on a blockchain, making it secure, immutable, and tamper-proof — ownership can be accounted for.

But how does that solve anything?

  • For starters, the process is suddenly much more secure, auditable, and formal.
    Storing data in a blockchain makes it automatically publicly visible and distributed. That is, the information regarding the transactions occurring in the deal is now stored in hundreds, or thousands in some cases, of computers around the world that will verify its authenticity.

The data is now safely stored, it’s immutable, and transactions can’t be undone.

  • The funding is stored on-chain through smart contracts; neither part can back down at that point:
    The moment a formalized contract between the issuer of the asset and the buyer is settled, that funding is now effectively stored in the smart contract address, where the conditions of the trade have been previously defined and accepted by both parties.
    If well coded, the smart contract represents the ultimate enforcer of payments in time and place, no more sketchy contract agreements.

  • Fungible tokens or NFTs, tokenization tailored to your needs:
    Depending on the nature of the asset, blockchains enable it to be tokenized in various ways. You can make those assets fractions unique with NFTs, ensuring that the ownership of the token and the underlying asset is traceable and enforceable.
    It’s asset fractionalization with a one-to-one traceability, nothing scapes the vigilant eye of the network.

  • SBTs allow for automatic and verifiable provenance:
    Blockchain’s cryptographic transaction signing ensures the provenance of the transaction, while Soulbound tokens allow for the sender and recipient wallets to prove the authenticity of the asset and the trustworthiness of the trade.
    Ensuring KYC and compliance make extremely opaque transactions that characterize illiquid assets a completely transparent and formal process.

  • No more black money:
    Public blockchains, being absolutely traceable, will actually be a great weapon against money laundering and other criminal activities. This is particularly interesting for illiquid asset markets like the ones discussed, as they are traditionally fueled by rampant corruption and tax-avoidance schemes.
    Asset tokenization brings all this activity to the public blockchain, making tax avoidance an uber-complicated task.

What are the challenges and how can you benefit? 🔗

There is no shortage of challenges that asset tokenization must face before becoming a reality, although inevitable.

  • Technological limitations:
    Blockchains are still evolving. Nowadays, the biggest limitation they face is decentralized scalability, a milestone that is yet to be reached. If blockchains are going to be the infrastructure of, not only a potential $16 trillion asset tokenization market, but also DeFi and the future of the Internet, it needs to scale.

  • Regulatory hurdles:
    Many of these assets are cross-national, with countries with very different regulations participating. Several adjustments to the process should be put in place depending on the country.

But how can I gain exposure? 🔗

Although it’s a nascent opportunity (where huge gains are really made), you can start to gain exposure in different ways:

  • Search for projects tackling this issue and, after carrying out the necessary research, invest in them if you find them suitable for you, normally by buying the project’s cryptocurrency.
  • Gain indirect exposure by owning the cryptocurrency of the platform-level project. For example, if you find an interesting asset tokenization project that sits on the Ethereum blockchain, any positive catalyst occurring in this project — and any other in that platform — have a direct effect on Ethereum’s cryptocurrency ETH.
  • Search for non-crypto companies that are intensely searching or considering becoming engaged in asset tokenization, as many companies are already offering tokenized versions of their assets.

Bottom line, we are witnessing the birth of a Crypto practical application that can democratize investing to society, and all thanks to the blockchain. Being capable of noticing these trends in advance can give you a huge edge over others in the upcoming years, so asset tokenization must be a core research theme for your investment strategy.

A final word 🔗

This article is inspired by BCG’s “Relevance of on-chain asset tokenization in ‘crypto winter’” report.
Become aware of the technologies that are shaping our future. Be ready to profit from that knowledge.

Disclaimer: I am not sponsored or affiliated with any of the projects/companies mentioned in this article. This is not financial advice, the information in this article is for educational purposes only. Never invest what you can’t afford to lose. I disclaim any liability or loss incurred by any person who acts on the information, ideas, or strategies discussed in my articles. Do Your Own Research. Consult a financial professional before making any major financial decisions.

Reference 🔗

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