By George Ward
Citi, an investment bank, has placed its bets on tokenizing real-world assets using blockchain technology as the upcoming “killer use case” in the cryptocurrency industry. The firm has predicted that this market will grow to approximately $4 to $5 trillion by 2030.
Private Equity And Venture Capital To Lead The Market
According to Citi’s report in March, this projection would represent a significant surge of 80 times the present value of real-world assets held on blockchains. Citi has estimated that out of the potential $5 trillion market value for tokenized assets, approximately $1.9 trillion could come from debt.
Real estate would contribute $1.5 trillion, while private equity and venture capital would contribute $0.7 trillion. In addition, securities would contribute about $0.5-1 trillion.
Citi’s research indicates that venture capital and private equity funds are likely to be the most popular asset class for tokenization, accounting for 10% of the market. Furthermore, real estate is expected to come in second, capturing 7.5% of the market.
The bank noted that private equity markets might experience faster adoption rates due to their favorable properties, such as fractionalization, liquidity, and transparency. Private equity firms such as KKR, Hamilton Lane, and Apollo have already established tokenized versions of their funds on platforms like Securitize, ADDX, and Provenance Blockchain, according to Citi.
The bank noted that blockchain tokenization would surpass traditional financial infrastructure due to its technological superiority and ability to offer greater investment opportunities.
According to the report, traditional financial assets are not necessarily flawed but suboptimal because conventional systems and processes restrict them. The bank observed that certain financial assets, such as private equity, fixed income, and other alternatives, have significant limitations, while other markets, such as public equities, are comparatively more efficient.
Some Drawbacks To The Future Of Tokenization
Meanwhile, Citi maintains that blockchain tokenization minimizes the risk of settlement failures and enhances the efficiency of tedious operations. The bank added that DLT and tokenization provide a novel technological infrastructure that enables all stakeholders to perform their activities on one shared platform, acting as a single source of reliable data.
This eliminates the wait for faxed or physical documents and operational constraints that limit investment choices. Despite the potential benefits, Citi recognized some drawbacks, such as the lack of a regulatory framework, obstacles related to infrastructure development, and a need for widely accepted interoperability standards.
Furthermore, the bank noted that some industry players are still skeptical. Their skepticism rose after the Australian Securities Exchange abandoned its unsuccessful $165 million DLT project last November.
Citi added that there would be more “growing pains” in the future. However, it remains optimistic that the ecosystem will mature as the technology develops.
According to the investment bank, once the intermediate stage is surpassed, the new disruptive technology will be free to create most’s dream future. The bank’s ultimate “future” is a financially native infrastructure accessible worldwide, operational all through the year, and optimized with DLT-enabled automation and smart contracts capabilities.