A look at real-world assets tokenization

The cryptocurrency industry has grown significantly over the past 2 years, with the total market capitalization peaking at $2.9 trillion in November 2021 and hovering between $1.5 to $2 trillion in early 2022. While the global financial system and various jurisdictions have yet to consider cryptocurrencies as an official asset class, it is indisputable that the cryptocurrency industry has made remarkable progress in terms of attracting capital.

The reason for this progress is the development and innovation of various use cases, from decentralized finance (DeFi) to non-fungible tokens (NFTs). While it is difficult to fairly appraise the valuations of DeFi protocols and NFTs, there are still risk-tolerant retail investors and even some large institutional investors who have allocated significant capital into them. The capital pooled into these projects is used for various purposes, from incentivizing user adoption to bootstrapping liquidity to ensuring a sustainable runway for a development team to continue building. However, this capital is typically only accessible by crypto-native projects. For example, it would not be easy for a traditional firm to acquire liquidity by taking a DAI (stablecoin) loan on Aave. This is because DeFi protocols such as Aave only issue loans over-collateralized by crypto assets, which is capital inefficient. More importantly, traditional firms may lack the technical know-how and regulatory approvals to access this capital.