Wall Street is going all in on tokenization.
Many have believed that some of my projections in the past regarding the market cap was nuts. Over the years, I firmly stated how we are going to more than a quadrillion dollars in tokenization. Much of this will be made up of cryptocurrency.
We are starting to see the early signs of where this is going. Bear in mind I am not including derivatives such as ETFs, which are not tokenization. That is a traditional Wall Street asset (for the moment).
Instead, the focus is upon the stuff that is actually tokenized. This means that a token can be moved from one wallet to another.
The starting point for much of this is real world assets. Here is where the likes of Blackrock and Franklin Templeton are looking to get into the game.
Of course, much of this is not available to the average investor. However, it is going to be the onset of something much larger.
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Wall Street firms are starting to see the advantages. Unfortunately, the regulatory environment is such that we are dealing with new technology trying to be squeezed into the traditional system.
This means we are seeing a recreating of the existing while trying to advance technologically. Eventually, we will see the time when this is not how it is done. I look at the hybrid phase like Netflix. This company did not go right to streaming. Instead, it took on Blockbuster Video by mailing out DVDs. Over time, it dumped that and simply offered the streaming service.
Of course, the net result was video rental companies went away.
With real world assets, the focus is on finance.
Mutual funds, bonds, exchange-traded notes, loans, securitizations, and alternative funds are the primary drivers of the tokenized market, which McKinsey predicts may reach over $2 trillion by 2030.
Honestly, this projection by McKinsey is likely too low. Once the regulatory framework is in place, this is going to explode. We see the amount of money that rolled into Bitcoin ETFs since their release. When institutions are playing amongst themselves, there is a lot more money available.
I have no idea exactly how the process will unfold. What I can tell you is there will come a point in time, within a few years, where it makes no sense to use anything but tokens. That means we will see a mad rush to tokenize real world assets of every nature.
Simply looking at the financial world, we are talking about hundreds of trillions when we include derivatives. These are traded on many exchanges throughout the world. Some will naturally be more aggressive than others.
It is hard to call this cryptocurrency although I guess technically one could make the case depending upon the definition. These will likely be tied to blockchains, the only question is who is in control of it. My guess is a lot of this will be built on networks the banks set up.
Whatever the situation, public cryptocurrency stands to gain a great deal.
There are many areas of technology for crypto developers to pursue. One of the keys is that value in the digital realm is realized via network effects.
How this translates is into token appreciation through activity. With many networks (and platforms), values go higher as more utility occurs. Also, the ongoing progress being made with AI makes this is a golden opportunity for the crypto world.
From a financial perspective, we can see how higher values means greater opportunities. People can unlock it through a variety of financial means such as collateralized lending. As platforms develop this, we see compounding possibilities as people leverage the value accrued.
This is exactly what Wall Street does.
At the same time, Wall Street is focusing solely on finance. This is its forte. However, tokenization is actually better suited for other industries. For example, it is ideal for gaming. This is an industry worth a few hundred billion globally. Again, as technology advances, this is likely to keep growing.
If we see the real world assets tied to public blockchains, such as Ethereum, that will open up the door for many to get involved. Other tokens could be swapped for the assets, most likely fractionalized.
Of course, regulation could hinder some of that but, as mentioned, this is going to take place globally. Not every country is going to have the same rules.
It is worth mentioning that decentralized applications offer a major solution to this.
The stablecoin market is roughly $180 billion. This is likely to increase significantly over the next 5 years.
It is a process that is going to be aided by the entry of Wall Street. As more activity occurs, a greater amount of stablecoins is required. This translates to both commercial and financial activity.
Increasing the amount of assets that are tokenized means that $180 billion is not enough currency to facilitate the those transactions. When we look at what occurs today, we are looking at tens of trillions in currency around the world.
Stablecoins will have to increase to match the demand for tokenized assets.
Web 3.0 is showing that all assets can be tokenized. This can range from T-bills to real estate. Much of the delay is due to regulatory constraints. Technology is moving far quicker than governments.
This is a fact that is likely to favor the decentralized arena. As different players emerge from around the world, certain development will take place which accelerates the process. Many countries will be faced with quickly adapting their laws or getting left completely behind.
For now, it is still a race for the builders. Development is key. The process of open source should help to accelerate things, enabling the non-Wall Street crowd to keep pace.
What it lacks in financial clout can be made up with number of participants. This begins with the developers.
