Introduction to Tokenization of Assets
The tokenization of assets has experienced significant growth, with the market rising to $27 billion, making it the fastest-growing corner of crypto. This growth is led by institutions such as Blackrock, with its $1.7 billion Buidl Fund, and other players like Franklin Templeton and KKR testing tokenization. However, despite this growth, the industry still faces challenges in meeting institutional standards, which are necessary for the development of real capital.
Current State of Tokenization
The current state of tokenization is characterized by a lack of infrastructure that meets institutional standards. Many platforms still rely on pooled or omnibus money exchanges, which introduces systemic risk and makes it difficult for institutions to trust these platforms. Additionally, the monitorability of assets is still a significant concern, with most RWA platforms falling short in providing real-time monitoring and testing.
Institutional Standards and Tokenization
Institutional standards are critical for the growth of tokenization. These standards include the segregation of assets, real-time monitoring, and compliance with regulations. Without these standards, institutional allocators are unlikely to invest in tokenization. The industry needs to prioritize building infrastructure that meets these standards, including regulated custody, insurance, and compliance.
Custody and Compliance Challenges
Custody and compliance are significant challenges in the tokenization industry. Institutions require highly recognizable custodian banks that offer regulatory and robust insurance for the protection of customers. However, the wider market still has a long way to go in meeting these standards. Compliance is also a critical issue, with the need for built-in KYC, AML controls, and white investor pools.
The Gap Between Headlines and Reality
Despite the significant growth of tokenization, there is still a significant gap between headlines and reality. The majority of crypto-native investors, hedge funds, and stablecoin issuers are still held back by banks, insurers, or pension funds that make up real institutional capital. The industry needs to prioritize building robust, institutional rails that can support the growth of tokenization.
Conclusion
In conclusion, the tokenization of assets has significant potential, but the industry needs to prioritize building infrastructure that meets institutional standards. This includes regulated custody, insurance, compliance, and real-time monitoring. By prioritizing these standards, the industry can unlock the growth of tokenization and attract trillions in institutional capital. As Abdul Rafay Gadit, co-founder of Zigchain, notes, “The next wave of institutional capital will flow to platforms that are bound by transparency, real-time monitoring, separate and insured custody, and compliance from day one.”
Read more about the challenges and opportunities in tokenization at https://crypto.news/wall-streets-rwa-bet-break-on-crypto-infrastructure/
Abdul Rafay Gadit is the co-founder of Zigchain, a blockchain protocol of the next generation, which was created to provide the core infrastructure for real-world financial applications. In Zigchain, Rafay oversees the development of core blockchain components, including the asset management engine and a $100 million ecosystem fund, supporting builders and institutions that bring traditional financial products to chain.
