(Bloomberg) — Bitcoin’s unprecedented rally is reviving hopes that the digital accounting technology underpinning cryptocurrencies will revolutionize everything from home ownership to bonds.
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Tokenization, or the process of creating digital representations of real-world assets on a blockchain, has become one of this year’s buzzwords in mainstream and crypto financial circles. The excitement is reminiscent of the hype a few years ago over using blockchain for everything from tracking lettuce at Walmart Inc. to digitizing actions that turned out to be premature.
For years now, the tokenization of assets beyond stablecoins that serve as a substitute for real currencies in cryptocurrency trading has declined. According to data tracker rwa.xyz, only about 67,530 parties, mainly institutions, own tokenized assets that are not stablecoins. Only 0.003% of the total value of global assets has been tokenized, and many companies behind the projects are on the brink of bankruptcy, says researcher Opimas.
The unfavorable US regulatory regime was largely to blame. For years, regulators encouraged banks to avoid cryptocurrencies and related risks. While tokenized securities run on blockchains and adhere to the same rules as traditional securities, regulators often lump them in with cryptocurrencies as worthy of greater scrutiny. Many financial services providers chose to stay away and instead invested in areas such as artificial intelligence.
That’s starting to change, as President-elect Donald Trump plans a more favorable regulatory regime for cryptocurrencies, and with the world’s largest asset manager, BlackRock Inc., launching a tokenized money market fund this year. That is pushing others to follow him.
“Now they felt like they could do something and they really sped up their timeline, whereas before they were just watching,” said Charlie You, co-founder of rwa.xyz. “They’re making things happen.”
Gearing up to gain greater traction, in October, card network Visa Inc. launched a platform that allows banks to issue fiat-based tokens. In November, stablecoin issuer Tether launched a tokenization platform. The same month, Mastercard announced that it had connected its token network with JPMorgan Chase to settle cross-border business-to-business transactions on the bank’s Kinexys blockchain-based platform, and sees an opportunity to introduce such payment schemes to more financial institutions.
“That is a clear trend that will continue to evolve and unlock many new business models. That trend is here to stay,” said Raj Dhamodharan, executive vice president of blockchain and digital assets at Mastercard. Kinexys already supports about $2 billion in transactions per day, according to JPMorgan.