According to research, one of the major growth areas in 2023 will be the tokenization of real-world assets (RWA).
In its most recent report, published on January 4, analytics firm CoinMetrics identified growth areas for the cryptocurrency industry in 2023. One of the growth sectors mentioned was the tokenization of real-world assets.
Physical and traditional financial assets are represented as digital tokens on a blockchain in this process. The tokens can then be bought, sold, and traded in the same way that securities are.
Furthermore, for those who do not or cannot hold physical assets, this creates a more secure and efficient investment environment.
In the latter half of 2022, the crypto bear market has seen a decrease in the tokenization of real-world assets. Nonetheless, CoinMetrics sees this as a potential growth area in the future.
“Despite this drop, RWA tokenization remains a promising growth area in the crypto market.”
It cited a recent pilot program by a number of banks to tokenize various projects in order to reduce transaction settlement times. Furthermore, in November 2022, JPMorgan, Deutsche Bank, and SBI traded tokenized currencies and sovereign bonds. For the experiment, they used the Ethereum layer 2 scaling network Polygon.
“This demonstrates the increasing adoption of RWA tokenization by major financial institutions, as well as their use of L2 for scaling,” according to the report.
MakerDAO, a pioneer in DeFi, is also delving deeper into real-world assets. Maker’s ‘Endgame Plan’ proposes converting DAI into a free-floating asset that is initially collateralized by real-world assets. Furthermore, the DeFi stablecoin protocol has recently invested $400 million in short-term treasuries and $100 million in investment-grade corporate bonds.
The number of RWA-backed loans has also increased. This demonstrates “growing demand for RWA tokens as a means of financing real world assets,” according to CoinMetrics.
In December, Archblock and Adapt3r announced a strategic partnership to bring on new institutional partners. The partnership begins with US banks utilizing on-chain financing of real-world assets.
According to the Financial Times, nonfungible token creators are diversifying into RWA to generate new revenue in the midst of a slump in the NFT market.
WisdomTree, a financial services company, has also launched a digital fund that tracks the Treasury Bond Index. “Overall, RWA tokenization is increasing in the crypto market, with major financial institutions and platforms exploring the use of these tokens in various transactions,” CoinMetrics concluded.