Imagine the most common criticisms of crypto currencies: They are speculative and their yoyoing price can be disastrous for unsophisticated investors. Sometimes they’re ridiculous, like meme-coins or cartoon apes that sell for millions.

You do not have to agree. I don’t agree with these criticisms (at least not in full). The merits of the arguments are not relevant. These are the main reasons why most banks, financial institutes, governments and millions of “normies”, have not yet bought any crypto.

What if crypto was not “magic money” made by non-nerds, but rather the “tokenization of” stocks, bonds and other real-life items that people care about?

Wall Street suits and others are now taking notice of the tokenization boom in real-world assets (RWAs), which began during the crypto winter. Tokenization allows you to “create liquidity” for things that currently aren’t liquid, says Lucas Vogelsang. CEO and cofounder of Centrifuge has tokenized more than $400 million in RWAs.

While most cryptocurrency is a new asset – from bitcoin to dogecoin to eth – tokenization brings assets from “real” life onto the blockchain, combining the benefits of blockchain with assets that are already in existence.

The “stuff”, or token, can be anything. On-chain can be used for art, real estate, luxury items like wine bottles, cars and carbon credits as well as financial instruments such T-bills, stocks and other financial instruments. Allan Pedersen is the CEO of Monetalis, which tokenized RWAs to use as collateral for MakerDAO. Pedersen claims that they have tokenized $1.2billion in Treasury Bills, which are now being used as collateral by MakerDAO.

Even intellectual property is tokenized. Let’s begin with a hypothetical. Sid Powell is the CEO and cofounder of Maple. Maple tokenizes assets, and turns them into collateral. Imagine that the YouTube cook has a large following. She’s funny, charismatic and knows how to entertain. She makes $50,000 per month in YouTube advertising revenue.

The creator can tokenize the copyright, and then sell it to financiers. “We purchase the token copyright from them. Powell explains that we own all of the royalties streams from the YouTube cooking videos. If the annual royalty is valued at $600k the financier can buy it at $550k. This allows for a built-in yield. The chef gets a loan based on these future earnings.

Powell says that this type of model is available to larger music companies, but not to smaller players. Tokenization opens up these tools to a wider audience. Morgan Krupetsky is Director of Business Development for Institutions and Capital Markets, Ava Labs. She says that tokenization can democratize the access to capital markets for all borrowers. “Smaller transaction sizes and lower investment requirements are economically viable.”


Tokenization allows you to create liquidity for items that are not liquid today

Tokenization can be used to benefit even the most mundane business projects, such as “shipping grains”. Another hypothetical: A shipper wishes to ship grain across the ocean. A shipper will usually get financing from the bank. The grain would be used as collateral for the loan. Powell says that this is a good thing to bring on-chain because it involves international finance. Powell compares the current system to Blockbuster Video and Netflix. Powell says that if I were Blockbuster, I would have to open a branch in Bulgaria if I was currently in Brazil and wanted to serve Bulgarian clients. If I am Netflix, all the client needs is an internet connection.

Let’s go back to grain shipping. The grain-shipper can now find capital anywhere in the world, instead of having to only deal with banks from Brazil or Bulgaria. Netflix is streaming. Powell says that Netflix “turns the global financial markets into clearing houses”.

The average person may not be concerned with shipping grain. The suits in finance are able to do the math and imagine the possibilities. They can envision a complete transformation of the financial markets. According to a report by Boston Consulting Group, the tokenized RWA could reach $16 trillion in 2030. This is a very abstract number. To get a sense of the potential size of the market, let’s consider the current market cap for bitcoin at $600 billion. What if bitcoin’s current market cap was $16 trillion. If bitcoin’s market cap was $16 trillion?

Welcome to the world of RWAs, where you can make a lot of money.

Private equity and public upside

Tokenization has been around for years, but it is only now getting a fresh look and new attention. Tokenization is a technology that has existed since 2017, in a similar way to how early adopters experimented with NFTs before they became mainstream. Think CryptoPunks and Rare Pepes. They’re now having a moment.

Infrastructure has improved. Institutions are more curious about tokens. And unexpected economic forces have pushed adoption. Financial adviser Adam Blumberg writes in a CoinDesk op-ed that as interest rates rise, many RWA options now offer double-digit interest returns, without the crypto-volatility risk. They can provide low-risk lending in markets that Traditional Finance cannot or will not go to, and maintain the efficiency of the process.

While FTX, and the embarrassing events of 2022, still tarnish the image of cryptos, banks and government have quietly — and almost stealthily– dabbled with the tokenization RWAs. The Monetary Authority of Singapore has begun tokenizing bonds. They are working with DBS Bank, JP Morgan and other banks. Gold is tokenized. Bank of America research found that the gold tokenized market alone exceeded $1 billion. “Tokenized gold offers exposure to physical gold with 24/7 real-time settlement and no management fees, storage costs, or insurance.”

The fact that corporations and banks are interested in tokenization is partly because they see it as a promising technology. The report found that institutions are interested in investing more quickly and tokenizing their assets within the next two-year period.

What makes these TradFi types so attractive?

Consider private equity funds. Philipp Pieper is the co-founder and CEO of Swarm. Another start-up tokenizing RWAs, says that blockchain can replace an entire fund. “A smart contract could do what a fund manager does normally and take 100-200 basis points off the equation,” says Philipp Pieper, co-founder of Swarm, another start up that tokenizes RWAs.

Tokenization can make the game fluid for the “closed” or more exclusive private equity funds. Imagine a fund called Annoyingly Rich Group that has bought a business jointly. They invest in this company at least for five years. When can they sell their shares and book profits? Members of the Annoyingly Rich may not agree on a timeframe.

Some people may want to continue their luck after Year Five and hope that the company they now own continues to grow. Some people might believe that the company has reached its peak value and they should sell it high. Some may simply wish to use their capital in other ways. Pieper says that tokenization could create a secondary market based on smart contracts for the fund. This would allow them to “structured de-risking or increasing risk, depending what they see.”

Equity funds may seem a mystery to those who are not high-finance professionals. Satoshi’s original vision was probably not to make life easier for wealthy venture capitalists. These innovations appeal to traditional financiers, who will need these influencers, whether they like it or no.

Vogelsang is the CEO of Centrifuge. “We are, in a way, dependent on large lenders to enter this space,” he says. He believes that the early adopters are not large enough to expand DeFi to $100 trillion. This is his vision of its future. Vogelsang says that the money for this will come from banks, pension funds and current companies. “The big task is to make them comfortable and understand the technology so that they will start using it,” says Vogelsang.

Stocks can also be tokenized. At first, I thought this was strange and pointless. Buying and selling stocks seemed easy and cheap with options like Robin Hood and Charles Schwab that offer zero-commission. There are hidden benefits.

Bob Ras, the co-creator at Sologenic who tokenizes stocks, commodities, and ETFs, says that you can’t buy a fraction. When you tokenize these stocks, users can purchase a fraction.

Ras acknowledges the fact that users can purchase fractional shares in Amazon or Tesla through the Robin Hood app. However, he claims this is because Robin Hood has a large number of popular stocks, and allows users to buy them from the app. It will be interesting to see if users are able to appreciate the distinction.

The settlement occurs instantly when you buy or sale a token. This is important in trading. Even in wealthy Wall Street corners, transactions still take two to three business days to settle. This has a price. Tokenization allows banks, hedge funds and trading desks to put their money to use as quickly as possible.

It is possible to cut out the U.S. Dollar as a middleman. Investors often sell one asset to another, such as Wal-Mart stocks. You’ll need to sell Tesla (for dollars), and then buy Wal-Mart with dollars. Tokenization may make this easier. Ray refers to this process as “cross conversion.” You can exchange your Tesla tokens for Wal-Mart ones. Ras says users could create and find their own trading pairs in a decentralized exchange. The invisible hand of free market would bring Wal-Mart token owners to Tesla token buyers, almost as if by magnetism. What’s the kicker? You would not pay capital gains tax if you had never sold in U.S. Dollars. It’s possible that future regulations could close this loophole.

Perhaps tokenizing stocks is just a novelty. If it is truly cheaper and efficient, and eventually scales up to become the norm, it could have a profound impact on Wall Street. Stocks could be exchanged 24/7, just like cryptocurrency. The majority of trading occurs between 9:30am and 10:00am EST. Corporate America also synchronizes its earnings reports, financial decisions, and communications (such as the buyback of dividends) with the established rhythms of Monday to Friday U.S. Stock Market. If tokenization becomes mainstream, it could cause havoc in all financial markets.

Pieper refers to tokenization as “Fin Tech 2.0.” In a post on Medium, he explained that he views tokenization as the natural progression of ETFs (exchange traded funds), which were first created in early 1990s. Tokenization could have the same impact as ETFs, which transformed the stock exchange. Investors can gain exposure to a basket or themed assets such as airlines, health care or energy through ETFs. What is tokenization? With tokenization?

As I wrote back then, Alex Mashinsky confidently told crowds that Celsius was able to “deliver high single-digit or low double-digit” returns with “much less risk” than banks. As I reported back then, Alex Mashinsky, the then Celsius CEO, confidently assured crowds that Celsius was able to deliver “high single-digit returns or low double-digit returns” with “much lower risk” than banks. It filed for bankruptcy after the New York Attorney General accused Mashinsky.

Or zoom out even further. In 2008, banks boosted their profits through the trading of complex financial packages that they did not fully understand and contained subprime mortgages. What happened next is well known. The banks wobbled and the economy crashed because the loans were toxic. Are we repeating the past by creating a clever system of debt and loans with RWAs?


Real World Assets will lose the cumbersome ‘Real World’ if the world is truly tokenized. The assets will just be assets

Vogelsang admits that this technology “could lead to a lot dangerous, bad products,” yet argues that their very nature, at its core, allows transparency and reduces the likelihood of a collapse. Vogelsang says that a big part of the 2008 problem was because people didn’t know what [the subprime loans bundle] was. “Nobody really knew.” “No one really knew, including retail users.”

Tokenization is transparent. Assets and liabilities can be seen by all. Daniela Barbosa is the Executive Director of Hyperledger. She says that “details of asset ownership and transfers can be recorded in the blockchain. This provides a verifiable auditable history.” This transparency increases trust and decreases fraud.

The word “theoretically” is the key here. Crypto sounds transparent and free of risk — just ask the investors at Terra.

Equalizing the playing field

It’s a trillion-dollar question for crypto at the moment: “Does SEC consider this a security?” Tokenizing real-world assets has the benefit of removing any ambiguity as to whether the token in question is a securities. It is exactly what it says. Pieper says that people have tried to do backflips in order to avoid being labeled as securities. Pieper says that they have built fake utility into the token to make it appear as if it is not a security.

The goal of tokenization is not to appeal to “accredited investors”. They believe they can help ordinary people. Consider small business loans. The private credit market is not liquid for small companies. This gives corporations an advantage. Vogelsang says that when Google issues bonds, they are easy to buy and sell. He says that this is why they pay only a small premium over the Treasury yield. So maybe 6% today. What if you are a small company? Vogelsang says there are few options for this loan because the market is not liquid. You would pay 15%. You’ll need to charge more for your products, which gives Google an advantage.

Vogelsang says that tokenization is a game changer. You level the playing fields. He admits that there will never be a time when Google and small businesses pay the same rates. There is more risk involved in lending money to small businesses than to Google. But creating liquidity helps to narrow the gap. Vogelsang says that this was the reason for founding Centrifuge.

Sid Powell, Maple’s CEO, says the same thing. He sees the tokenization as a means to bring real benefits to the average person, and help the industry recover from its negative reputation. The RWA narrative revolves around the question of how lending on-chain can help real-world companies grow.

Cash is probably the most popular tokenization. Cash is being tokenized. Stablecoin is what it’s called. Pieper says that it’s a real asset which is being replicated and then made tradable on the blockchain. Central Bank Digital Currencies are, essentially tokenized versions of central bank currencies that exist on distributed ledgers. Barbosa says that these would “shorten the timeframes and reduce costs for cross-border transactions and settlements”.

Since Tether was launched in 2014, the tokenization of money has had global implications. Pedersen’s “big idea” is that the “world’s money market (USD) is a USD money market.” And that all of this dollar collateral “sits in many different places.” No one knows its exact size. Pedersen says that “nobody has transparency” and describes the pools of dollar denominated collateral as being “completely black.” When the system fails, it “blows the world up every time.”

What if the U.S. Dollar market was collateralized and put on the Blockchain? Pedersen says, “You’ll have a transparent world money market.” “Central banks will be able to understand what is going on,” helping them avoid the next financial catastrophe.

Many people see tokenization as inevitable because of its benefits — and the fact that it does not come with the downside risk associated with crypto-price speculation. Krupetsky of Ava Labs predicts that “more and more assets” will be tokenized, to the point we won’t distinguish between tokenized and untokenized assets. She says it will be similar to how “we no longer differentiate between digital marketing and marketing” – there’ll just be marketing.

If the world is truly tokenized, then “Real World Assets” will simply be called assets and not the cumbersome “Real World.”

Ben Schiller is the editor.