Regulations must be developed for tokenized real-world assets to be more effectively incorporated with Decentralized Finance (DeFi). Consequently, their immediate advantages will not be substantial, according to Greg Cipolaro of NYDIG.
The tokenization of equity shares will not promptly be of considerable advantage to the cryptocurrency market. Nevertheless, the gains could be augmented if assets of this nature are permitted to integrate more efficiently onto blockchain platforms, as stated by NYDIG.
“The benefits to networks these assets reside on, such as Ethereum, are light at first, but increase as their access and interoperability and composability increase,”
NYDIG global head of research Greg Cipolaro said in a note on Friday.
The primary advantages will be derived from the transaction costs levied for utilizing tokenized assets. Additionally, the blockchain supporting these assets will benefit from expanding “network effects” for their storage, Cipolaro further noted.
The tokenization of real-world assets (RWAs), like U.S. equities, has become a prominent discussion point within the cryptocurrency sector. Following successful implementation abroad, major exchanges, notably Kraken and Coinbase, are now interested in introducing platforms for tokenized stock within the United States.
Securities and Exchange Commission chair Paul Atkins stated earlier in the month that the U.S. financial framework could adopt tokenization within “a couple of years.” Cipolaro commented that this indicates that “tokenization is likely to be a major direction.”
“In the future, these Real-World Assets (RWAs) could be observed as components of Decentralized Finance (DeFi) via composability, potentially serving as collateral for secured borrowing, an asset for external lending, or for exchange,” he elaborated. “This transformation will require time as the necessary technology progresses, supporting infrastructure is erected, and governing rules and regulations advance.”
Tokenization Assets Vary Widely in Structure and Risk
Cipolaro observed that creating interoperable and composable tokenized assets is not a simple process, since “their form and functionality differ considerably,” and they are hosted on both public and private networks.
The Canton Network, a non-public blockchain platform that was established by the company Digital Asset Holdings, currently holds the distinction of being the largest blockchain for tokenized assets, with a value of $380 billion. This figure represents “91% of the total ‘represented value’ of all RWAs,” as clarified by Cipolaro.
“Attention should be given by investors,” he concluded, “even if the present economic consequences for conventional cryptocurrencies are currently minimal.”
“However, the fundamental structure of the specific tokenized asset can differ substantially, even on an open, permissionless network such as Ethereum,” Cipolaro stated. “These Real-World Assets (RWAs) often constitute securities, and so requirements from conventional finance, such as broker-dealers, Know Your Customer (KYC)/investor accreditation, whitelisted digital wallets, transfer agents, and other frameworks, are necessary.”
He further explained that even though tokenized assets still necessitate conventional financial structures, blockchain technology is being utilized by companies for the advantages of “nearly instantaneous settlement, 24/7 operation, programmatic ownership, enhanced transparency, auditability, and collateral efficacy.”
“In the future, if things become more open and regulations become more favorable, as Chairman Atkins suggests, access to these assets should become more democratized, and thus these RWAs would enjoy expanded reach,”
Cipolaro said.
“Attention should be given by investors,” he concluded, “even if the present economic consequences for conventional cryptocurrencies are currently minimal.”
