Past attempts at fractionalising ownership have often resulted in ‘making a silk purse out of a sow’s ear’ but, in contrast, tokenisation transforms ownership of material assets into digital tokens registered on a blockchain, and this can enable fractional ownership, increased liquidity and greater transparency. In the next 10 years, it is quite possible that almost every asset will be available as an investment token. Tokenisation has witnessed significant growth in the past years, resulting from a boom of interest among investors, companies and regulators.

Market Overview

 If all traditional asset classes – the stocks, bonds, real estate, commodities and so on that make up the bulk of the world’s wealth – could be tokenised, then they could be traded instantaneously on decentralised platforms. All those assets could be broken into ownership fractions that anyone could afford, anyone could buy and anyone could sell. The process would democratise ownership, opening up a world of new investment possibilities.

Key Market Trends

Several key trends are driving the growth of the tokenization market:

 •Security Token Offerings (STOs): A form of token offerings that represent ownership of a real-world asset that is likely to deliver returns. An example is profits from an innovative venture, where the STO is seen as a more regulated and compliant version of a generic Initial Coin Offering (ICOs).

 •Tokenisation of real estate: Tokenisation of real estate assets enables fractional ownership, increased liquidity and reduced transaction costs.

•Commodity Tokenization: Tokenizing commodities can provide greater transparency, traceability, and efficiency in supply chains.

 •Decentralised Finance (DeFi): Tokenised assets on DeFi platforms are being used to develop new financial products such as peer-to-peer lending, loans, derivatives and more.

Market Size and Growth

 The global tokenisation market is thriving on a rapid growth trajectory with the rise in implementation of blockchain technology and growing list of use cases. As per research, the size of the market in 2023 was US$ 2.87 billion, and is estimated that this size can reach US$ 11.18 billion by 2031, propelling at a CAGR of 18.5%.

Regional Market Analysis

 The tokenisation market is geographically fragmented, where different regions have varying growth rates. North America and Europe hold the largest shares of the market. The United States stood as number one in market growth due to its built-in regulatory set-up and mature financial foundation. Moreover, Asia Pacific, especially Singapore and South Korea, shows its true potential as a new powerhouse in tokenisation because of blockchain-adoptive regulatory frameworks and rising interests in blockchain.

Challenges and Opportunities

While the tokenization market offers immense potential, it also faces several challenges:

 •Regulatory uncertainty: The regulatory regime for tokenisation remains a gray area, which poses challenges both to businesses and to investors.

• Scalability: Beyond scalability issues with globally deployed blockchain platforms such as Ethereum, tokenisation will simply not be economical or environmentally sustainable

 •Security issues: As with anything new, blockchain networks, as well as smart contracts, have basic security concerns that can lead to massive losses.

 Tokenisation is tricky but, for business, investors and regulators, the opportunities are huge To get to that point, though, the market first needs to confront the regulatory challenges, by ensuring that the ground rules are agreed worldwide and enforced properly. Tokens would also need to be made more scalable, and more secure.

Competitive Landscape

 When it comes to who is dominating the tokenisation market, the answer is that no one is. There are a ton of players in the market including both large, mature firms and lots of startups. Some examples of the large companies are … These companies are looking for technological expertise, keep growing their suites and preparing for payments packages, and make alliances that help them stand out.

 Finally, the tokenisation market is still in its early days: a technical, economic, social and conceptual space that promises to disrupt a variety of industries as it grows and matures, and as regulators become more comfortable with it.

FAQs:

1. What is the difference between a security token and a utility token?

 What is the right answer? A security token is a token that represents ownership of an underlying asset, such as real estate or a company’s equity, whereas a utility token is a token that gives the entitled person access to a service or product provided by a company (eg, voting rights to a DAO). Security tokens are regulated differently than utility tokens.

2. How does tokenization improve liquidity for assets?

 Solution: By tokenising the assets, their owners enable fractional ownership, thereby making utilisation of products more widely accessible to the market, reducing transaction costs, and hence increasing market efficiency.

3. What are the potential risks associated with investing in tokenized assets?

 Response: any investment you make is at your own risk, as it carries risks of market volatility, technological risks, regulatory uncertainty and fraud. It is up to you to do your own due diligence.

4. How can tokenization benefit supply chains?

 Answer: Tokenisation may enable supply chain traceability and visibility by using electronically managed and triggered automated data, collectively known as digital trails, to make the movement of goods, services and materials more efficient in terms of eliminating wastage and monetising excess resources (for instance, credits for unused perishables). This may have an impact on logistics, transportation, cross-border trade, information storage, packaging, labelling, data certification, documentation, insurance premium adjustments, and sustainable finance by making auditing easier and reducing the possibilities of using fake or fraudulent information, such as certificates relating to the movement of livestock, cotton, handicrafts, medical supplies or anything that could strain a country’s currency.

5. What is the future outlook for the tokenization market?

 Answer: Overall, it’s likely that the market for tokenisation will continue to grow in the future as the technology matures and the regulatory landscape grows more defined. Indeed, there is room for this market to grow despite the issues of scalability, security and competition that it faces.