Citi is betting that blockchain-based tokenization of real-world assets will be the next “killer use case” in crypto, with the market expected to be worth $4 trillion to $5 trillion by 2030. Citi explained in its March report “Money, Tokens, and Games” that this would represent an 80-fold increase over the current value of real-world assets locked on blockchains.
“By 2030, we forecast $4 trillion to $5 trillion in tokenized digital securities and $1 trillion in DLT-based trade finance volumes,” the firm’s analysts said. The bank estimates that $1.9 trillion will be tokenized in debt, $1.5 trillion in real estate, $0.7 trillion in private equity and venture capital, and between $0.5 and $1 trillion in securities.
According to the research, private equity and venture capital funds will be the most tokenized asset class, accounting for 10% of the total addressable market, with real estate coming in second at 7.5%. According to the bank, private equity markets will likely see faster adoption rates due to their favorable liquidity, transparency, and fractionalization properties.
Three private equity firms, KKR, Apollo, and Hamilton Lane, have already launched tokenized versions of their funds on platforms such as Securitize, Provenance Blockchain, and ADDX. According to Citi, blockchain tokenization will replace legacy financial infrastructure because it is more technologically advanced and provides more investment opportunities in private markets.
“Traditional financial assets are not broken, but they are sub-optimal due to limitations imposed by traditional systems and processes,” it stated. “Some financial assets, such as fixed income, private equity, and other alternatives, have been relatively constrained, whereas other markets, such as public equities, have been more efficient.”
Citi claims that blockchain tokenization eliminates the need for costly reconciliation, prevents settlement failures, and makes time-consuming operations more efficient:
“What DLT and tokenization offer is an entirely new tech stack that allows all stakeholders to do all activities on the same shared infrastructure as a single golden source of data — no more expensive reconciliation, settlement failures, waiting for faxed documents or ‘originals to follow’ by post, or investment choices limited by operational difficulty in access.”
However, the investment bank acknowledged that there are currently drawbacks, such as a lack of a legal and regulatory framework, difficulties in building infrastructure, and obtaining a widely followed set of interoperability standards.
Citi also noted that some industry participants remain “skeptical,” particularly in light of the Australian Securities Exchange’s (ASX) November cancellation of its failed $165 million DLT project.
Citi added that there will be many more “growing pains” ahead. However, the bank is confident that the ecosystem will mature as technology advances: “Once this skeuomorphic’straddle’ state is crossed, the new disruptive technology breaks free from the old and ideally trends in the direction of the desired end-state.”
Citi envisions this “end state” as a “globally accessible, 24x7x365 digitally native financial asset infrastructure optimized with smart contract and DLT-enabled automation capabilities, enabling use cases impractical with traditional infrastructure.”
