Tokenization has emerged as a revolutionary application of blockchain technology. Initially leveraged for start-ups to raise funds through Security Token Offerings (STOs), it's now rapidly expanding to encompass the tokenization of real-world assets (RWA), unlocking new investment opportunities and market efficiencies.

Following are the four (4) main asset classes that have tremendously reaped the benefits of tokenization.

• Tangible Assets, such as real estate, artworks, and physical commodities (like gold and diamond). 
• Intangible Assets, such as carbon credits, renewable energy, and intellectual property. 
• Financial Assets, namely stocks, bonds, and derivatives.
• Fiat Currencies, mainly represented by fiat-backed stablecoins and central bank digital currencies (CBDCs). USD-pegged stablecoins like USDC and USDT, in particular, have been dominating the market value of the tokenized asset.

This article will dive into the specifics of tokenization for each asset class. But first, let’s shed light on the basics of asset tokenization.

Asset Tokenization Fundamentals

Asset tokenization is the process of transforming ownership rights or economic rights in a real-world asset (RWA) into digital tokens stored on a blockchain. The real-world asset tokens, abbreviated as RWA tokens function as tradable units on a secure, decentralized ledger, fostering greater transparency, efficiency, and accessibility in asset ownership and transactions. 

Asset tokenization fosters a win-win scenario for all participants in the investment landscape. 

• For issuers: Through asset tokenization, companies issuing RWA tokens, known as issuers can unlock new funding sources by creating a more liquid market and accessing a broader investor base for their assets. This translates to easier access to capital and potentially lower operational costs. 
• For investors: Fractional ownership through tokenization makes previously out-of-reach assets accessible to more investors. In addition, blockchain technology, the foundation of tokenization, provides investors with transparent transaction history data to make informed decisions with greater confidence.

According to a Boston Consulting Group (BCG) forecast, tokenization is expected to deliver $16.1 trillion in values of tokenized assets by 2030, accounting for 10% of the global GDP. 

Tokenization is set to best benefit traditional private markets, which offer attractive investment opportunities but are traditionally characterized by exclusivity and suffer from limited liquidity and opacity.

If you are seeking an easy-to-follow guide to get started with tokenization, we recommend you check out our latest guide to tokenization for issuers, covering the fundamentals and key steps for a successful tokenization project. 

Four Types Of Assets That Can Be Tokenized

1. Tangible Assets

Tangible, high-value assets such as real estate, artworks, and physical commodities (like gold and diamond) are traditionally characterized by exclusivity, demanding substantial capital investments. This group of real-world assets can significantly benefit from being tokenized.

‍Take real estate tokenization for example. Real estate stands as one of the largest investment markets globally, valued at US$637.80tn by 2024, according to Statista. Despite its size, it remains one of the most illiquid asset types, demanding substantial capital investments and enduring lengthy and costly transaction processes.

Traditional methods of real estate investment involve hefty capital outlays to acquire properties outright or through investment vehicles like publicly-listed Real Estate Investment Trusts (REITs) or crowdfunding. However, these avenues have limitations. REITs typically focus on larger income-producing projects and neglect 99% of global real estate assets. Additionally, traditional real estate funds often lock investors in for 7-10 years, exposing them to potential losses during market downturns.

Tokenization emerges as the solution to address those challenges and advance financial inclusion. Here is how:

• Fragmenting Ownership: Lowering entry barriers with tradable real estate tokens attracting more investors to participate in the market.
• Boosting Liquidity and Capital Efficiency: investors can buy and sell the real estate tokens on secondary marketplaces.
• Empowering Owners: Increased investor demand grants property owners greater flexibility and capital access.

Imagine a commercial building worth $10 million. Traditionally, only a few wealthy investors could join in such ventures. With real estate tokenization, ownership of the building can be divided into digital tokens, say $10,000 each which enables a broader investor base for such real estate. Moreover, instead of being tied to a high-value property that's hard to sell, real estate investors can trade these tokens representing shares in the property on secondary markets and enjoy liquidity benefits.

‍Or, in the case of tokenized commodities, the market cap of commodity-backed tokens climbed to over 1 billion USD in 2024. Tokenized precious metals such as Tether Gold (XAUT) and PAX Gold (PAXG) make up 83% of the market cap of commodity-backed tokens, and among them, gold remains the most popular tokenized commodity.

2. Intangible Assets

Intangible assets such as carbon credits, renewable energy, and intellectual property can be tokenized to enable easier tracking and trading, unlock new investment opportunities, and improve market efficiency just like any real world asset. 

Traditionally, ESG assets such as carbon credits and renewable energy are traded in complex over-the-counter (OTC) markets. This process can involve private transactions and intricate financial arrangements, making it challenging for smaller investors to participate. Tokenization makes such types of assets more accessible and transparent, enabling easier tracking and trading.

Meanwhile, managing intellectual property (IP) rights, such as patents or copyrights, can be a complex and costly process. Tokenization creates a secure and transparent record of ownership on a blockchain. These tokens can then be used for licensing, royalty payments, or even fractional ownership of the IP itself.

Real-world examples of tokenizing intangible assets:

• MUFG Bank’s subsidiary Progmat to launch a carbon credit marketplace with KlimaDAO
•  Climate 8 Holdings Ltd - a pioneering firm in the carbon market with a mission to generate carbon credits through nature-based solutions - launched its carbon credits project on our sister tokenization platform IX Swap.

3. Financial Assets

Tokenization of financial assets involves creating digital representations of the assets on a blockchain or distributed ledger technology (DLT). Financial asset tokenization, such as private equity tokenization, private credit tokenization, bond tokenization, and fund tokenization are other prominent use cases of blockchain technology. 

Once tokenized, financial instruments can be more tradable, accessible to a wider range of investors, and cheaper to deal with. In addition, tokenized financial instruments get access to DeFi applications, such as on-chain lending, borrowing, and staking to unlock more use cases for investors.

We believe that the size of the lending and borrowing market will far surpass the level of trading volume for security tokens, which is the main focus of the market today and is missing the forest from the trees. In the private credit and debt markets, there is no easily obtainable measurement of volumes but most assets are not traded because there is no defined system for this. Using blockchain technologies and smart contracts to issue securities digitally brings a new system for the trading of these assets transparently and efficiently.  

More on this topic: From Stocks To Security Tokens - The Next Lending Frontier.

Real examples of tokenizing financial assets:

• World Bank partners with Swiss National Bank and SIX Digital Exchange to issue a 7-year CHF 200 million digital bond, using Distributed Ledger Technology (DLT).
• Spice Venture tokenizes venture capital funds on InvestaX’s tokenization SaaS platform.

4. Fiat Currencies

Fiat currencies are increasingly being digitalized using blockchain technology in this digital age. Common digital forms of fiat currencies include fiat-backed stablecoins and central bank digital currencies (CBDC). 

Fiat-backed Stablecoins

Fiat-backed stablecoins such as  USDT, USDC, DAI are a type of cryptocurrency designed to maintain a steady price, pegged to a fiat currency like the US dollar. Unlike regular cryptocurrencies known for their volatility, stablecoins achieve this price stability through collateralization. This means the issuer holds reserves in the equivalent amount of the pegged currency, essentially backing each stablecoin with real money.

Fiat-backed stablecoins, primarily USD-pegged tokens, currently dominate the market value of the RWA market.

Central Bank Digital Currencies (CBDC)

Central bank digital currencies, or CBDCs, are essentially digital versions of a country's fiat currency, issued and controlled by its central bank. Hence, CBDCs are centralized and regulated, unlike fiat-backed stablecoins which reside in a decentralized finance (DeFi) world and are not fully regulated.

According to the World Economic Forum, CBDCs would not replace cash but complement it. The major drivers behind creating CBDCs include:

• CBDCs can cut transaction costs and times
• CBDCs can help people access money in emergencies
• CBDCs can boost financial inclusion
• CBDCs can counter criminal activity

As of May 2024, a total of 3 countries have launched CBDCs, pioneered by The Bahamas, another 36 have pilot programs, and another 30 are in development, according to the Atlantic Council’s CBDC Tracker.

Examples of CBDCs: 

• Nigeria's eNaira (Oct 2021)
• China's e-CNY (pilot April 2020)
• India's e-Rupee (pilot Dec 2022)
• Russia's digital ruble (pilot Aug 2023)

For further information on CBDCs, we encourage you to read this article by The World Economic Forum about CBDCs and their potential advantages and disadvantages.

Tokenize Your Assets On Top Of Our Infrastructure

Are you an issuer looking to tokenize real world assets? InvestaX has you covered with our leading Asset Tokenization SaaS platform Licensed by MAS (Monetary Authority of Singapore). Our tokenization SaaS platform offers a one-stop-shop asset tokenization solution, including issuance, secondary trading, and custody of any type of assets. Issuers can launch their tokenized assets to global investors on our tokenization platform.

Contact us for a consultation on your asset tokenization strategy.