Crypto payments helped drive early innovation and adoption of blockchain technology, but the core benefits of improved access, efficiency and liquidity are now driving the latest transformational application of this technology – real-world asset tokenization. And business leaders are taking note.
Seventy-two percent (72%) of respondents to Ripple’s 2023 New Value Report said they expect to explore tokenization as a way to drive innovation within the next three years.
To be successful, these businesses will need to build an asset tokenization strategy that accounts for the elements and industries best able to unlock the full potential of blockchain.
Unlock business value
The growing interest in and examples of tokenization can be traced back to the wide range of benefits that blockchain technology enables. From tokenizing financial assets and real estate to ownership and event tickets and carbon credits, tokenization helps maximize business revenue through streamlined management, increased accessibility, and greater liquidity.
One of the main benefits is greater transparency. Transaction data stored on a blockchain is immutable, promoting greater security of sensitive information and a more trusted ecosystem. For inefficient markets like the voluntary carbon credit market that suffer from opacity and double counting, this represents a huge leap forward in credibility.
Tokenization can also improve access to an asset class by reducing traditional barriers to entry, lowering costs or asset prices, and eliminating geographic boundaries. This enables companies to offer clients a wide range of real assets that were once out of reach. For example, a real estate project in one corner of the world can now be signed and made available to investors in the other, at a more accessible price point.
But the benefits of tokenization can only come about when the markets for these tokenized assets become more liquid and have a strong secondary market.
Companies can further benefit from the operational efficiencies of signed assets on the blockchain, including faster transactions, reduced management fees and lower costs. As one example, the XRP ledger (XRPL)—an open-source, decentralized, public blockchain—was purpose-built for financial use cases and has enabled more than 2.6 billion transactions to occur in real-time, error-free, for more than a decade. .
Due to the decentralized nature of blockchain and distributed ledger technology (DLT), tokenized asset markets can be accessed 24/7/365 regardless of time zone or traditional market hours. As previously mentioned, blockchain transactions are immutable, which dramatically improves the traceability of a signed asset. Each of these benefits has a positive impact on the bottom line or can be passed on to end users to create a competitive advantage within the market.
Industries at the forefront of tokenization
While tokenization will undoubtedly touch all corners of the world, certain industries are particularly poised to thrive in the emerging token economy. Backed by the foundational elements outlined above, early adopters along with a trusted crypto-liquidity provider will help lead the charge to adopt tokenization.
As bank-issued stablecoins continue to gain traction, financial institutions will play a pivotal role in the payments ecosystem. By using blockchain to power a modern payment solution, stablecoins can enable merchant settlement, cross-border payments, treasury functionality and signed loyalty programs, among other use cases with faster settlement times, lower costs and greater transparency.
Asset management funds are also undergoing a seismic shift. A BNY Mellon survey found that ninety-seven percent (97%) of respondents said they believe tokenization will revolutionize the industry. This sentiment was reflected in Ripple’s 2023 New Value Report, with more than half of global financial leaders indicating plans to use digital asset custody within the next three years. Businesses are eager to pass on the benefits of signed assets to their customers.
Traditional banks are also well positioned to thrive in a token economy. By offering a unified platform for holding multiple assets — fiat, digital currencies (e.g. stablecoins, cryptocurrencies) and tokenized assets — banks can provide a comprehensive view of an individual’s financial portfolio, increasing customer trust and engagement. promote.
Building blocks for a tokenized economy
As businesses prepare for a signed future and seek to capitalize on these benefits, they must plan for four key elements that will serve as the foundation for success: enabling liquidity, on/off ramps, retention and compliance.
Enabling Liquidity: Liquidity refers to the ability to buy or sell an asset without causing a dramatic change in the asset’s price. Liquidity facilitates core treasury functions, supports business growth and protects asset holders from risk.
On-Ramps: The process of seamlessly converting traditional assets to digital assets and vice versa is known as on-ramps. This functionality is essential to enable the easy conversion and transfer of value, and to bridge the gap between different forms of currency or assets. Businesses will increasingly rely on crypto-native payment service providers (PSPs) for this purpose.
Security: Security is paramount in the world of tokenization. Custody refers to the secure storage of digital assets that support all transaction-related activities on a blockchain – from trading, staking, lending, buying, selling and beyond. Robust institutional-grade crypto-custodial solutions ensure the safety of digital assets and provide a seamless experience for users.
Compliance: Compliance is non-negotiable. Businesses involved in tokenization must comply with current and future regulatory standards to ensure the legality of their operations. A well-structured compliance framework builds trust and credibility, supporting an enabling environment for growth.
The way forward
Tokenization is actively transforming the future of business. As companies harness the value that tokenization can deliver—from improved transparency to universal access to unprecedented liquidity—they must be prepared to navigate the complexities of this evolving landscape. In the third and final part of our series, we will address the liquidity challenges businesses may face in a token economy and how to overcome them.
Learn how your business can integrate crypto solutions to unlock value today.
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