Investment bank Citi is betting on blockchain-based real-world asset tokenization to be the next “killer use case” in crypto, with the company predicting the market will reach between $4 trillion and $5 trillion by 2030.
That would mark an 80-fold increase from the current value of real-world assets locked in blockchains, Citi explained in its March report “Money, Tokens and Games”.
“We estimate $4 trillion to $5 trillion from tokenized digital securities and $1 trillion from distributed ledger technology (DLT)-based finance trade volume by 2030,” the firm’s analysts said.
Of the tokenization of up to $5 trillion, the bank estimates that $1.9 trillion will be debt, $1.5 trillion from real estate, $0.7 trillion from private equity and venture capital and between $0.5-1 trillion from securities.
The research shows that private equity funds and venture capital will be the most tokenized asset class, taking 10% of the total addressable market, with real estate coming in at 7.5%.
The private equity market will see faster adoption rates due to its favorable nature of liquidity, transparency and fractionalization, the bank said.
KKR, Apollo and Hamilton Lane are three private equity firms that have set up token versions of funds on platforms like Securitize, Provenance Blockchain and ADDX.
Citi says blockchain tokenization will replace legacy financial infrastructure as the technology advances and offers more investment opportunities in the private market.
“Traditional financial assets are not broken, but they are not optimal because they are limited by traditional systems and processes,” he said. “Certain financial assets – such as fixed income, private equity, and other alternatives – have been relatively limited while other markets – such as public equity – are more efficient.”
Citi says blockchain tokenization negates the need for costly reconciliations, prevents settlement failures and makes difficult operations more efficient:
“What DLT and tokenization offer is a new technology stack that allows all stakeholders to perform all activities on the same infrastructure with a single gold data source – no more expensive reconciliations, settlement failures, waiting for faxed documents or ‘originals to be done’ with post, or limited investment options due to operational difficulties in access.
The investment bank, however, admits that there are current shortcomings, such as the lack of a legal and regulatory framework, the challenge of building infrastructure and achieving widespread interoperability standards.
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Citi also noted that some industry players also remain “sceptical”, especially since the Australian Securities Exchange (ASX) recently delisted a failed $165 million DLT project in November.
There are many more “growing pains” to come, Citi added. But the bank remains confident that the ecosystem will mature as technology evolves:
“After the intermediate, skeuomorphic ‘straddle’ state has been crossed, the new disruptive technology breaks free from the old and ideally directionally trends towards the envisioned end-state.”
Citi describes this “end state” as “a native digital financial asset infrastructure, globally accessible, operating 24x7x365 and optimized with smart contracts and DLT automation capabilities, enabling use cases impractical with traditional infrastructure.”
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