Tokenization and real-world assets are taking center stage

By Peter Gaffney, CoinDesk, compiled by Song Xue, Golden Finance

In 2023, the asset tokenization and real-world asset (RWA) space attracted the attention of retail and institutional investors due to its favorable combination of professionally managed products and digital asset mechanisms. To date, we have advised more than 40 clients on tokenization strategies and offerings, and we see the following key themes emerging in these markets in the third quarter of 2023.

Blockchain saves costs and boosts profits

For investors entering this space, the greatest efficiencies will come from the end-to-end digital system – which means the on-chain lifecycle. This means savings in dollars or manual labor time compared to traditional processes. For example:

• Goldman Sachs Digital Asset Platform (GS DAP) saved 15 basis points on the issuance of a €100 million digital bond, resulting in an additional return of €150,000 for the sole buyer, Union Investment.
• JPMorgan Chase’s Onyx Digital Assets (ODA) expects tokenized repo volume to reach $1 trillion by the end of 2023, resulting in $20 million in savings.
• Broadridge’s Distributed Ledger Repo (DLR) saves sell-side customers such as Société Générale $1 million per 100,000 repo transactions.
• Equilend launched 1Source as a distributed ledger-based securities lending solution, saving the securities lending industry approximately $100 million in collective costs.
• Intain, a structured financial services platform, reported a 100 basis point savings by reducing SME loan lifecycle fees from 150 basis points to 50 basis points through Hyperledger and Avalanche blockchain solutions.
• Vanguard leverages R3’s Corda for straight-through processing with Grow Inc., saving 100 hours of labor per week.
• Liquid Mortgage reduces mortgage-backed securities (MBS) reporting time on the Stellar blockchain from 55 days to 30 minutes.

Money markets and Treasuries are low-hanging fruit

Asset managers and issuers are becoming familiar with the tokenization workflow by experimenting with money market and treasury products. The yield generated by these tokenized assets can be passed on to customers entirely on-chain.

While alternative product strategies such as Hamilton Lane’s digital-native private equity equity classes are in the works, money market yields in the low-risk segment are around 5% per annum. As of the end of Q3 2023, the asset class had accumulated nearly $700 million in on-chain capital, up nearly 520% year-to-date.

Market value of on-chain treasury bonds: monthly growth

Distribute tokenized products through an institutional customer base

To date, one of the weaknesses of the tokenization industry has been actual product distribution and capital syndication. ** Institutions began to tokenize assets for more than just operational purposes and savings (buybacks, collateral management) and now tokenized products with their own customer base as buyers.

Citi is one of the leaders in this regard, offering digital corporate bonds to its Southeast Asian private banking and wealth management clients through Singapore’s BondbloX. UBS previously issued more than US$400 million in digital bonds to high-net-worth clients in Singapore through an Ethereum-based money market fund.

As blue-chip stocks such as JPMorgan Chase and Goldman Sachs continue to develop their digital suites, their private banking, wealth and asset management, and alternative investment teams are expected to act as distribution channels, unlocking significant amounts of capital that are difficult for retail broker-dealers to access.

Source: Golden Finance