The tokenization of financial and tangible assets could be the «ideal use case» to help blockchain achieve its breakthrough. One US bank sees enormous potential within private markets in particular.
Unlike with innovations such as Metaverse and ChatGPT, there is no direct interface for users with tokenization, which could be why many consumers fail to see its potential. However, according to Citigroup, blockchain is on the verge of being adopted by billions of users and reaching trillions of dollars in value.
Inflection point
When over a billion users find themselves using blockchain, unaware that they are doing so, is when the technology will be deemed a success, according to the report «Money, Tokens, and Games.»
This is likely to be driven by the introduction of digital central bank currencies (CBDCs) by central banks, as well as tokenized assets in games and blockchain-based payments in social media, it said. By 2030, CBDCs worth up to $5 trillion could be circulating in the world's major economies, half of which could be linked to distributed ledger technology (DLT), according to Citi analysts.
Huge potential
The tokenization of financial and physical assets could also be the «ideal use case» to help blockchain breakthrough. Tokenization in private markets is expected to grow 80-fold and reach a value of nearly $4 trillion by 2030.
Some of the world's largest asset managers and banks, including UBS, are already experimenting with tokenization on private or public blockchains such as Ethereum. Blackrock CEO Larry Fink believes tokenization will be the next generation of markets and securities.
Early Days
The global market for outstanding equities and fixed-income securities is estimated at over $250 trillion. These traditional securities have the potential to be one of the biggest use cases for tokenization, according to the study’s authors.
The analysts believe, however, that private markets are likely to adopt tokenization faster due to benefits such as liquidity, transparency, and fragmentation. Product growth is still at a very early stage, but Citigroup sees $4 trillion to $5 trillion in the potential for tokenized digital securities by 2030.
The estimate assumes that 1 percent of corporate and quasi-government bonds, 7.5 percent of real estate funds, 10 percent of private equity and venture capital funds, and $1 trillion of securities financing and hedging transactions will be tokenized.
In parallel with the tokenization of securities, the study says within trade finance up to $1 trillion in volume could be transacted on the blockchain by 2030. That would then correspond to about 8 to 10 percent of the global trade finance volume.
