In this report we offer an overview on the dynamic space of tokenizing ‘real-world’ valuables (or off-chain assets, ‘OCAs’), exploring advantages and obstacles, while delving into innovative projects and protocols in this field. Among other findings, we report the significant benefits that tokenizing OCAs may offer across key economic sectors. The most important of these benefits are improvements in asset management and administration, market efficiency and liquidity, as well as risk diversification. Despite these potential advantages, there are hurdles to overcome for OCA tokenization to reach its full potential. The most important of these include legal and regulatory uncertainties.
Given our report findings and OCA tokenization’s massive growth potential, we see three likely key developments when looking ahead: First, tokenizing a diverse array of OCAs requires interdisciplinary and industry-specific expertise. As such, we expect increasing cross-industry collaboration between traditional finance, niche experts (e.g., insurance, trade financing, etc.) and blockchain technologists/entrepreneurs. Second, overcoming key blockers, such as regulatory uncertainty and fully realizing the growth potential of OCA tokenization will likely affect sectoral growth dynamics within the OCA tokenization space. While stablecoins are today’s champion in terms of market capitalization, tomorrow’s challenger may be the massive (illiquid) OCA debt markets that comprise a significant proportion of global wealth. Third, unlocking the space for institutional players (via appropriate legal and regulatory frameworks) may affect demand for the underlying blockchain infrastructure, where we expect to see significant experimentation with various strategies for tokenizing OCAs, including more tailored designs, such as app-specific chains.
We discuss the above and more in this report that is organized into four parts:
- The first part introduces the concept of tokenizing OCAs, gives examples for types of assets that can be tokenized, and provides an overview of the general steps in the tokenization process.
- The second dives deeper into the potential benefits of tokenized OCAs for stakeholders in what we define later as the i) financial economy, ii) real economy, and iii) crypto economy. It also discusses the general hurdles that remain towards the widespread adoption of tokenized OCAs.
- Part 3 maps out the landscape of OCA tokenization by discussing prominent and promising players in key OCA tokenization sub-sectors.
- We end with our main findings in Part 4 and provide an outlook for the space.
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