By far the biggest theme in Real World Assets remains tokenization. RWA 1.0 saw the emergence of marketplace models such as Goldfinch, Clearpool, Maple, Teller, and even Polytrade which are working on a lending pool model. These models, though many were initially focused on crypto market makers initially, brought new borrowers and yield diversification to DeFi that was not seen before.
Though tokenization is nothing new, with many implementations from private chains to niche assets like wine and hotel rooms, RWA tokenization on public chains is fast emerging as many credible players are starting to take it seriously. This could be the start of RWA 2.0 where tokenized assets behave as the underlying collateral.
One of the biggest highlights at Consensus was Franklin Templeton launching their money market fund on Polygon. Each share of the Franklin OnChain U.S. Government Money Fund is represented by one BENJI token.
This is preceded by big names such as Hamilton Lane’s shares of their private equity fund in conjunction with Securitize. Privately, Polytrade connected with several large banks and financial services companies, many of which have set up entire tokenization teams, though many banks are still wary of doing so through public chains. We think another couple of years will make it clear that private chains are not the way to go.
At Polytrade, we’ve been leading the effort on tokenization by tokenizing the collaterals against our lending pools. As of today, you can go to the Polytrade website, click on a pool, and transparently see the tokenized invoices backing each lending pool. In fact, we’re beta-testing our tokenized asset marketplace that you can check out here.
Additional read: RWA Marketplace: The Ultimate Guide
Granted tokenization is a real wave, the key question becomes what assets are best suited to be tokenized?
And here the debate rages on. Given where T-Bill yields are, they and money market funds have become one of the most sought-after assets to bring on-chain with Maple, Ondo, and Franklin Templeton all giving access to mid-single-digit yields on T-Bills.
But here is the counterpoint: treasuries and money market funds are one of the most accessible instruments already in the real world in both the US and most developed economies. Does tokenization really provide any value for an asset class that is already easily accessible and liquid?
Instead, will tokenization play a larger role for previously illiquid assets like Real Estate (Roofstock), telecom spectrum (Bloxtel), agri-commodities, private equity (Securitize), structured finance, and trade finance (Polytrade)?
On the road, we met many proponents for either side. What’s my take? I believe early adoption will undoubtedly come to T-Bills and money market funds. After all, bringing together assets and investors in previously illiquid and even unknown asset classes is not easy. Over time, however, the traditionally liquid assets will get commoditized. The real value will eventually accrue to platforms that create a new market for previously illiquid products and are able to create real moats in origination, niche network effects, technology, and brand. That is where tokenization’s benefits of custody, global network, fractionalization, bundling, and simplification will shine.
Key Takeaways
- Everyone is tokenizing everything, but what is it really suited for?
- The following 2-3 years will see an uptake in tokenized well-known, traditionally liquid assets. Still, the value will be unlocked in the long run when previously unknown and illiquid assets find a global market through tokenization.
- Private / consortium chains are still the darling of larger banks and institutions but given how low adoption this has gotten, another 2 years should see them come and play in public.