Tokenization of real-world assets (RWAs) is becoming more popular among institutions, with financial heavyweights such as BlackRock diving into their own tokenized assets. Blockchain technology allows traditional assets, particularly private and alternative assets, to be dispersed, issued and managed more effectively.
Since 2018, the Security Token Market (STM) has been keeping an eye on more than 600 tokenized items in this market. Here are some key trends and their performances.
One notable example is the BlackRock USD Institutional Digital Liquidity Fund ($BUIDL), a tokenized money market fund that has become a favorite among institutions. By the end of June 2024, $BUIDL had a net inflow increase of 5.93%, closing with an AUM of $483,311,326.32.
So, why bother putting a fund like this on the blockchain? The answer lies in the utility it offers. The token, which was issued by Securitize on the Ethereum network, was recently used as collateral on FalconX to obtain loans and secure positions in derivatives.
Mike Reed of Franklin Templeton gave a fascinating talk at TokenizeThis 2024 about his experiences in the venture capital industry. Using the tokenized money market fund ($BENJI), he cited a venture investor who wants to fund portfolio startups. The goal was to leverage blockchain technology to create an asset that could generate income and be kept in the company’s treasury, enabling improved oversight of the funds’ usage.
Proof of concept and practical applications are revealing a plethora of additional instances of cost savings and potential benefits, including the following:
- Every 100,000 repo transactions, according to Broadridge, saves $1 million.
- JPMorgan’s Onyx, through Project Guardian, reduced portfolio rebalancing steps from 3,000 to only a few clicks, assuming 100,000 discretionary portfolios.
- Using smart contracts, the same proof of concept also removed roughly 18% of yearly cash drag from discretionary portfolios.
- More than $7 billion worth of HELOCs have been tokenized by Figure, saving 150 basis points in the process. The final investor and the issuer both profit from these savings.
- With the help of Broadridge, Hashnote’s USYC product hopes to gain access to the intraday market, which is mostly used by banks. This collaboration will increase yield and benefit clients.
In light of these scenarios, what types of assets are being tokenized? In addition to debt and real estate, the STM also covers fund LP units and on-chain equity.
The RWA Securities Market’s June 2024 report from the STM states that a security token bundle that includes all STM-tracked RWAs performed better than the CoinDesk 20 Index, which closed in June 2024 at +13.73% as opposed to -11.74% for the index. The decline in the cryptocurrency market could be due to macroeconomic factors, with the anticipation of lesser rate cuts.
Additionally, Bitcoin spot ETF net outflows have created negative sentiment in the cryptocurrency space, affecting BTC’s price and other cryptos in the CoinDesk 20. Nonetheless, industry players such as Coinbase Global Inc. (NASDAQ: COIN) remain optimistic about the long-term future of the crypto industry.
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