RWA Flavour🌻
Real-world asset tokenisation tops crypto sector performance in May. $1.49B tokenised treasury bonds market. Biden’s threat to tokenisation push. Public blockchains too fragile for tokenisation?
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Real-world asset (RWA) tokenisation has been crypto’s fuel this season.
Technology that pairs real-world assets with digital tokens on a blockchain.
Now when a football club offers 10% digital equity shares and a multi-million dollar loan is issued by securing tokenised 316-year-old Stradivarius violin - we know the tread is catching up.
As per forecasts from research firms like BCG, McKinsey, Roland Berger, and Bain & Company it could climb to anywhere between USD 4-16 trillion in the coming years.
No surprise that Real-world asset (RWA) tokenisation was the best-performing crypto sector in May, 2024. Outperforming all major sectors.
According to data from the crypto analytics platform Artemis Terminal, for fully diluted market capitalisation (FDV) RWA clocked 57.5% performance compared to Ethereum (24.2%) and Bitcoin (12.5%) for the period - May 1- 31.
Read: Trillion dollar crypto opportunity 👀
Larry Fink, chairman and CEO of $10 trillion fund BlackRock has been a fan of tokenisation, and has been bullish about it after the spot Bitcoin ETF success.
“The next generation for markets, the next generation for securities, will be the tokenisation of securities,” he said during a DealBook event in 2022.
Jenny Johnson, the president and CEO of $1.6 trillion fund Franklin Templeton, is all for traditional finance institutionsleveraging blockchain technology.
“First of all, I am a huge fan of blockchain and the technology. It’s a very efficient technology, and we think it’s going to open up a lot of new investment opportunities. And, honestly, eventually, I think ETF and mutual funds are all going to be on blockchain. We were astonished by how much less costly it was to run it on blockchain.”
Four key use cases
Deloitte identifies four near-term opportunities.
Bond issuance: Issuing bonds as tokenised assets via blockchain protocols carries the advantage of improved transparency and faster settlement times. Improve liquidity and accessibility.
Intra-day repo transactions: Streamline repo transactions, which involve selling securities with an agreement to repurchase them at a higher price on a later date, typically used for short-term financing.
Exchange-traded products: Enhance the efficiency of exchange-traded products by reducing costs and improving settlement times. Products like ETFs, which are highly liquid but still face significant settlement challenges.
Private markets: Unlock the potential of private markets, which are double the size of public markets but significantly less liquid. Includes private credit, equity, and real estate markets, which are less accessible due to their illiquidity.
Tokenised treasury bonds markets
$1.49 billion, increased over 100% in market value in 2024.
BlackRock’s BUIDL tops the list on market capitalisation.
Market potential: Consultant Oliver Wyman estimates that tokenised assets could top $14 trillion by 2030.
In tokenisation news
Tokenised bonds: The European Investment Bank issued tokenised bonds using platforms provided by banks including HSBC and Goldman Sachs.
Intra-Day Repo Transactions: JPMorgan's $300 billion in intraday repo transactions via its Onyx platform is an example of tokenised collateral.
Digital equity: English football club Watford FC is offering 10% of the club as digital equity to investors and fans through Seedrs, the European arm of investment platform Republic. This move aims to raise around £17.5 million ($22.3 million) by selling shares at a price of £12 per share
Tokenised security: Galaxy Digital Holdings has issued a multimillion-dollar loan secured by a tokenised 316-year-old Stradivarius violin. The loan collateral includes both the physical violin and its digital representation as a non-fungible token (NFT), ensuring robust security and asset management flexibility.
Money market funds: Fidelity International tokenised shares in a money market fund (MMF) using JPMorgan's Onyx Digital Assets blockchain, improving efficiency in delivering margin requirements and reducing transaction costs and operational risk.
Collective settlement: Mastercard has partnered with major US banking institutions, including Citigroup, Visa, and JPMorgan, to test distributed ledger technology for collective banking settlements on a single platform using tokenisation.
Public Blockchains Too Fragile For Tokenisation
Not everyone is in favour.
Hilary Allen, professor at the American University Washington College of Law, makes the argument against tokenisation in a speech to the United States House Financial Services Committee (HFSC) on June 5.
“Crypto runs on permissionless public blockchains, and tokenisation does not need to … they are a poor fit for the vast majority of problems people have tried to make it solve.
Blockchains suffer from inescapable inefficiencies and operational fragilities that make them unsuitable as supporting infrastructure for real-world assets.
We should be very thoughtful about where tokenisation is deployed.”
Allen's comments highlight the potential limitations of blockchain technology, but other witnesses at the hearing, representing firms involved in tokenised securities, called for Congress to ease legal and regulatory obstacles to tokenisation.
They argued that existing statutes and regulations were not designed with blockchain in mind.
Block That Quote 🎙️
Co-founder of Tether and the decentralised exchange WAX, William Quigley.
“You only enhance fiat when you tokenise it.”
Quigley believes that global economies will likely transition to tokenised money in the next 10 years.
Potential benefits of tokenised fiat.
Faster and cheaper global transactions.
New financial mechanisms like interest-bearing fiat tokens.
Increased accessibility and liquidity for global finance.
Tokenisation blurs lines?
When tokenised, payments and investment can blur, as tokens derive value and also provide ease of ownership transfer.
Explain: Transform asset ownership (stocks, real estate) into digital tokens on a blockchain for fractional ownership increasing liquidity and making some financial products more accessible to small investors.
Benefits: Increased accessibility, fractional ownership, and faster settlements.
Rob Durscki, senior director of tokenisation at the Stellar Development Foundation
“What we’re seeing now with partners like Franklin Templeton, WisdomTree, and others issuing this new round of assets on-chain is that they want to unlock yield, [...] but they also want to make it almost seamless to use as a payment tool as well.
Nothing prevents us here from splitting the check on the dinner, and I’ll pay with Franklin Templeton funds because I can send you $20 in 3.6 seconds on Stellar. [...] If you forget about that, you’re still getting 5%, 6% a year on that dinner. [...] This is a positive blur between investment and payment because it’s ultimately value, right? And we’re unlocking the movement of value.”
Ripple forecasts tokenised markets to reach $16 trillion in the coming years, a figure eight times larger than the total market capitalisation of the entire crypto sector.
Bradley Chase, Ripple’s vice president of engineering
“Those customers now have their own customers that want to pay in stablecoins and they want to hold those stablecoins. So that’s kind of the simplest on and off-ramp gateway for them into the space.”
Biden Threat To Tokenisation Push
President Joe Biden's veto of a bill to repeal SEC guidance SAB 121 has halted momentum on the trillion-dollar opportunity to tokenise assets like stocks and bonds.
Impact on crypto and tokenisation: The guidance makes it financially impossible for big banks to safeguard large amounts of crypto, undermining Wall Street's tokenisation opportunity.
Election issue: Crypto has emerged as a hot-button election issue, with the industry amassing an $85 million warchest to sway voters before November's election. The industry is attracting increasingly bipartisan support, with the bill to repeal SAB 121 passing both chambers of the House.
Risk profile: SAB 121's vague definition of crypto assets could encompass digital versions of traditional securities, making it difficult for custodians to hold tokenised securities.
Read: President Joe Vetoes 🆑
In The Numbers 🔢
$110 BTC
That’s how much DeFi Technologies, a Canadian fintech company has purchased as its “primary treasury reserve asset.”
Bitcoin as treasury playbook has going off-shore after MicroStrategy’s play in the US.
The company is a crypto-native player, provides exchange-traded products (ETPs) and has stake in Web3 infrastructure.
It trades on Cboe Canada under the “DEFI” ticker, and the stock jumped by 26% following the news.
Olivier Roussy Newton, CEO of DeFi Technologies
“We have adopted Bitcoin as our primary treasury reserve asset, reflecting our confidence in its role as a hedge against inflation and a safe haven from monetary debasement. As the best-performing asset over the past decade, Bitcoin offers significant short to long-term potential to expand the company’s treasury.”
Institutional adoption of Bitcoin: Treasury allocation is a growing trend of crypto integration in the financial sector and adoption of the decentralised currency.
Read: Bitcoin Treasuries 💵
The Surfer 🏄
The National Bank of Georgia partnered with Ripple to enhance digital payments. The collaboration aimed to transform Georgia's financial landscape using Ripple's cutting-edge technology.
Uniswap Labs has acquired "Crypto: The Game" (CTG), a popular on-chain survival game, in a mixed cash-token-and-equity deal. The CTG team will continue to develop the game and on-chain features.
Lykke, a UK-based crypto exchange, suspended trading after a security incident caused loss of $22 million. The exchange claims that unauthorised access was gained, but on chain sleuth SomaXBT suggests that it was a hack.
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