A Preset Precedent
Historically, groundbreaking innovations have had drastic effects on the markets they occur in. These dynamic shifts from established orthodoxy drive economic growth, disrupting established industries, creating new market leaders and in some cases new markets all together. For instance, the Industrial Revolution, powered by innovations like the steam engine, led to massive productivity, urbanisation, and the rise of the factory-based economy, fundamentally altering the global economic trajectory. In recent years, innovations like the internet have revolutionised communication, commerce, and information access, creating tech giants like Amazon and Google while rendering traditional businesses obsolete.
Considered to be one of the most promising innovations of our time, Real World Asset (RWA) tokenisation is poised to disrupt financial markets by allowing physical assets like real estate, finance, and commodities to be represented and traded as tokens. Although innovations can cause market volatility—evidenced by speculative bubbles such as the dot-com boom of the 1990s—over time, they typically lead to long-term value creation, increased global trade, and shifts in economic power.
Industry Potential for Tokenisation
Real Estate:
Real estate is one of the most promising sectors for tokenisation. By allowing fractional ownership, tokenisation can improve access to property investment which has long been considered a low risk & high return investment. As such a large amount of capital is required for investment, the market has typically suffered from low liquidity. One of the inherent benefits of tokenisation is its ability to improve liquidity. Even the most simple real estate transaction occurring in a fully developed economy requires substantial paperwork, intermediaries and long processes and every step typically comes with a charge or a fee. These stopgaps can dilute the potential profit of the sale in the first place. However, use of smart contracts to automate transactions and streamline processes can further the appeal of tokenisation in this sector.
In recent years, the real estate market has shown considerable openness to change. Use cases like Libertum showcase a market gradually warming up to the idea of tokenisation. The journey toward widespread adoption is still in its early stages and faces significant hurdles. A major factor is the need for regulatory clarity; without well-defined legal frameworks, risks of non-compliance and uncertainty remain as barriers for many would-be adoptees. Furthermore, market education is crucial, as many stakeholders in the real estate market—ranging from investors to property managers—still lack a comprehensive understanding of how tokenisation works and its benefits. Additionally, the development of appropriate infrastructure is necessary to handle the complexities of tokenised assets, such as secure digital wallets, efficient trading platforms, and reliable networks. These challenges must be addressed on a massive and exhibitable scale before this market can move from experimental and novel tokenisation into a more mainstream positioning.
Securities:
Tokenisation offers the finance industry the ability to create new financial instruments and improve access to investment opportunities. Tokenised securities, for instance, can offer greater transparency and efficiency in trading, as well as lower barriers to entry for investors. So blatant are the benefits of RWA tokenisation for the financial sector that BlackRock CEO Larry Fink has recently been quoted as saying “I believe the next generation for markets, the next generation for securities will be tokenisation of securities. Distributed ledgers will bring instantaneous settlement and change the whole ecosystem”
With major players recognising the possibilities of tokenisation, financial institutions are intrigued by tokenised securities. However, challenges, particularly the absence of standardised regulations may scupper the ambitions of some companies. This regulatory ambiguity can create uncertainty, making it difficult for institutions to fully commit to tokenisation without risking non-compliance. Additionally, concerns about security, especially in the context of handling and custody of digital assets, present significant obstacles.
Market forces, including the push for innovation and the need to stay competitive, will drive the future of tokenisation in the financial sector. Yet, without a clear regulatory framework and stronger security measures, companies may remain cautious, balancing the potential benefits of tokenisation against the risks of premature or unsuitable adoption.
Precious Metals:
Precious metals are one of the oldest and most trusted forms of value, and they present a unique opportunity for tokenisation. For example, by converting gold into tokens, investors can gain fractional ownership, allowing for greater liquidity and easier access to the precious metal without the need to physically store it. Many of the major challenges related to precious metal investment can be resolved through tokenisation more so than probably any other asset. Custody, liquidity, storage and access have been issues suffered by precious metal traders for centuries. The nature of tokenisation addresses these challenges, opening up markets to a global audience, enabling micro-investments, and facilitating transactions with minimal friction.
The market for tokenised metals is gaining traction, fintech companies and innovative financial institutions see the value in merging traditional assets with digital technology. With precious metals positioned in the mind of investors as a reliable store of value, traditional investors may be hesitant to trust tokens over physical ingots. It may require time and effort to build awareness and confidence in the security and reliability of tokenised assets.
The perception of precious metals like gold as a safe-haven asset, combined with increasing interest in digital assets, is driving the exploration of tokenisation in the gold industry. However, for something like tokenised gold to achieve mainstream adoption, the industry needs to address the gap between the potential benefits of tokenisation and the practical challenges related to regulation, technology, and market readiness.
Market Preparedness for Tokenisation: Key Influencing Factors
The preparedness of these diverse markets to adopt tokenisation vary and several key factors can be identified that are common across real estate, financial services and precious metals.
The regulatory landscape plays a critical role in determining market readiness. In industries where regulations are clear and supportive, such as in certain jurisdictions for tokenised securities, adoption is likely to be faster. Conversely, in sectors where regulations are ambiguous or restrictive, such as real estate, we can predict market preparedness to be lower.
The availability and maturity of technological infrastructure, including platforms and digital wallets, are essential for integration of RWA tokenisation. Industries with advanced ecosystems are better positioned to adopt tokenisation, However, In the case of gold trading, which can often be subject to a localised market with traditional values and processes held in high regard, the eagerness for change may in some cases be absent. Those who are not tech-savvy or are reliant on legacy systems may struggle with the transition.
Among industry participants and investors appetite is a key factor. Industries with high demand for liquidity, transparency, and efficiency, such as finance and real estate, are more likely to embrace tokenisation. Competition and economic conditions will also drive or hinder adoption. In highly competitive industries, companies may adopt tokenisation as a way to differentiate themselves and gain a competitive edge. Conversely, in industries facing economic downturns, the focus may be on cost-cutting rather than investing in new technologies. The speed at which platforms can create use cases will dictate how appealing tokenisation is as eventually it will become more than a competitive edge, it will become an industry standard.
Conclusion:
Tokenisation holds immense potential to transform various industries. The readiness of the market and industries to adopt this technology may vary. The significant influence RWA platforms hold over the situation is encouraging. RWA tokenisation is passing over the gap of conceptuality and novelty and into the realm of confidence and normality due largely to platforms and projects meeting issues head on. Industries will have to continue exploring and experimenting with tokenisation. Bridging the gap between large-scale practical implementation will require a coordinated effort among all parties who realise the world of benefits on offer.
This article was inspired by a recent X space featuring Defactor, For more information on upcoming spaces, Follow Defactor.
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