Real-world asset (RWA) tokenization is set for explosive growth over the next five years with assets under management potentially topping $600 billion by 2030, according to several new research papers from major traditional financial institutions.
Global consulting firm Boston Consulting Group labeled RWA tokenization as “the third revolution in asset management,” in an Oct. 29 paper.
“We see a pattern of growing investor demand in the tokenized funds space,” said David Chan, Managing Director and Partner at BCG.
The paper, jointly produced with Aptos Labs and Invesco, estimated that tokenized fund assets under management could reach 1% of global mutual funds and exchange-traded funds (ETF) AUM in just seven years.
“This would imply an AUM of more than $600 billion by 2030,” the researchers noted.
Cointelegraph reported that the sector could grow by as much as fifty times by 2023.
“Over the coming period, we expect that trend to continue, especially when regulated on-chain money such as regulated stablecoin, tokenized deposit, and central bank digital currency (CBDC) projects materialize,” Chan added.
Development of Tokenized Real-World Financial Assets. Source: BCG
Additionally, the mass adoption of tokenized real-world assets is expected to be led by bonds as their structural features make them ideal for blockchain issuance, according to a separate paper from State Street Global Advisors.
“The bond market is ripe for adoption,” wrote State Street researchers in an October report on asset tokenization in capital markets.
“The complex nature of the instruments repeated nature of issuance costs, and high competition among intermediaries support both a rapid pace of adoption and room for significant impact,” said Elliot Hentov, head of macro policy research, and macro policy strategist Vladimir Gorshkov.
Blockchain technology can play an important role in markets that “prize velocity of trading, such as repos and swaps,” they added.
The report explained that bonds are essentially debt instruments with a fixed maturity date and have three main characteristics that make them well-suited for tokenization: recurring costs which can be reduced by tokenization, complexity which can be automated by smart contracts, and collateral usage which can be facilitated by on-chain transfers.
The bond market is where tokenization is already visible. Source: State Street
The report also noted that private equity funds show high transformative potential, however, public equities show lower adoption potential as current systems work well.
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Real estate and individual private equity tokenization face significant challenges and commodities offer potential for direct ownership but face regulatory constraints, the researchers stated.
The Financial Stability Board also released a research paper on asset tokenization this month. It shared that adoption of RWA tokenization is low but growing, with most tokenization for government debt followed by equity stakes in debt funds, payment tokens, and commodities.
Industry analytics platform rwa.xyz noted the recent increase in RWA research papers from institutions and asset managers in a post on X on Oct. 29.
The platform shared that the total value of RWA non-chain is $13.25 billion, up 60% year-to-date.
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