Tokenization of Physical Assets - Wall Street's Hottest "New Term"

Will tokenization become the next revolution in the financial industry, or is it just a fleeting phenomenon?

Recently, the price of Bitcoin has reached new highs, rekindling hopes for blockchain technology to innovate the financial system. Asset tokenization (Tokenization, which refers to the digitization of real-world assets, such as stocks and bonds, through blockchain technology and representing them as tradable tokens) has become one of the hottest topics on Wall Street and in the cryptocurrency circle this year.

Analysts indicate that many current conditions are favorable for tokenization.

First, Trump plans to establish a more favorable regulatory framework for cryptocurrencies; second, BlackRock, the world's largest asset management company, launched a tokenized money market fund this year, which has prompted other institutions to follow suit.

Currently, several fintech giants have begun to lay out tokenization businesses:

1. Visa launched a platform in October that allows banks to issue fiat tokens;
2. Stablecoin issuer Tether launched a tokenization platform in November;
3. Mastercard announced it would connect its token network with JP Morgan's Kinexys blockchain platform for cross-border B2B transaction settlements. JP Morgan stated that the Kinexys platform currently supports about $2 billion in transactions daily.

Raj Dhamodharan, Executive Vice President of Blockchain and Digital Assets at Mastercard, stated:

“This is a clear trend that will continue to evolve and unleash many new business models.”

Proponents of tokenization believe that this technology can enhance asset liquidity, allow more investors to participate, and reduce costs and transaction times. Rob Krugman, Chief Digital Officer at Broadridge, even stated:

“It could have a greater impact than the internet; it fundamentally rethinks how markets operate.”

However, this enthusiasm inevitably brings to mind the scenario a few years ago when blockchain technology was overly hyped—at that time, people believed blockchain could be applied to various fields, from tracking lettuce at Walmart to digitizing stocks, but it ultimately proved to be premature.

According to data tracking platform rwa.xyz, currently, only about 67,500 entities (mainly institutions) hold non-stablecoin tokenized assets. Research firm Opimas pointed out that only 0.003% of the total global asset value is tokenized, and many companies involved in related projects are on the brink of bankruptcy.

Analysts indicate that the previously unfavorable regulatory environment is one of the main reasons. For years, U.S. regulators have encouraged banks to steer clear of cryptocurrencies and related risks. Although tokenized securities operate on the blockchain and comply with the same rules as traditional securities, regulators often classify them alongside cryptocurrencies as subjects requiring increased scrutiny.

Currently, Trump's support for cryptocurrencies undoubtedly injects a strong stimulant into tokenization, which has also raised concerns among some economists: This wave may lead to the tokenization of assets that should not be tokenized, exposing investors to new risks, such as hacking. Investors may unknowingly pay higher fees for tokenized products compared to traditional products or ultimately hold assets that are difficult to sell. ** Nathan Allman, CEO of Ondo Finance, warned:

"You will ultimately find that a large number of mispriced assets are being sold to less sophisticated investors."

However, there is no doubt that despite the controversy surrounding tokenization technology, it does have the potential to improve certain financial processes, as Ervinas Janavicius, Managing Director of Capco, stated:

"There are many opportunities, and we do not deny that, but there is still a lot of work to be done."