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(Bloomberg) — Bitcoin’s record high is rekindling hopes that the digital ledger technology that underpins cryptocurrencies will revolutionize everything from home ownership records to bonds.
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Tokenization, or the process of creating digital representations of real-world assets on a blockchain, has become one of the buzzwords this year in both mainstream financial and crypto circles. The excitement is reminiscent of the hype a few years ago surrounding the use of blockchains for everything from tracking lettuce to Walmart Inc. until the digitization of stocks that turned out to be premature.
For years, asset tokenization has been flagged beyond stablecoins that serve as a proxy for real currencies in crypto trading. Only about 67,530 parties, mostly institutions, hold tokenized assets that are not stablecoins, according to data tracker rwa.xyz. Only 0.003% of the total value of global assets has been tokenized, and many companies behind the projects are on the verge of going out of business, says researcher Opimas.
An unfavorable US regulatory regime was largely to blame. For years, regulators encouraged banks to avoid crypto and related risks. Although tokenized securities run on blockchains and adhere to the same rules as traditional securities, regulators often lumped them with crypto as deserving of greater scrutiny. Many financial service providers chose to stay away and instead invested in areas such as AI.
That’s starting to change, as President-elect Donald Trump plans a more crypto-friendly regulatory regime and with the world’s largest asset manager, BlackRock Inc., launching a tokenized money market fund this year. This is pushing others to follow.
“Now they felt they are able to do something and they really accelerated their timeline, whereas before they were just watching,” said Charlie You, co-founder of rwa.xyz. “They’re making things happen.”
Gearing up for more traction, in October card network Visa Inc. launched a platform that allows banks to issue fiat-based tokens. In November, stablecoin issuer Tether launched a tokenization platform. In the same month, Mastercard announced that it has connected its token network with JPMorgan Chase to settle cross-border business-to-business transactions on the bank’s Kinexys blockchain-based platform and sees an opportunity to introduce these payment schemes in addition financial institutions.
“This is a clear trend that will continue to evolve and unlock many new business models. This trend is here to stay,” said Raj Dhamodharan, executive vice president of blockchain and digital assets at Mastercard. Kinexys already supports about $2 billion in transactions per day, according to JPMorgan.
