Tokenization Market Analysis

tokenization market analysis – what really happened in 2023

The size of the tokenization market

In order to perform a proper tokenization market analysis, it makes sense to first look at the potential market volume and then compare what actually happened in 2023.

The global tokenization market is considered by many analysts, along with artificial intelligence, to be one of the largest growth markets in the next 10 years. The Boston Consulting Group and others have published estimates that put the market at $10 trillion by 2030.

Now there is a new report from 21Shares, one of the largest issuers of crypto traded exchange products (ETPs). In this report, the potential market volume is broken down into three scenarios.

Tokenization Market Analysis - Potential Volume
Source: Research

Pessimistic scenario (Bear): A market capitalization of $3.5 trillion results in this scenario. With low penetration rates (see chart on the right), only low percentages of existing assets are tokenized.

Standard Scenario (Base): Market capitalization is estimated at 6.8 trillion in this scenario. The penetration rates of the asset classes are in the single-digit percentage range.

Optimistic Scenario (Bull): This scenario forecasts a market capitalization of 9.9 trillion, which is very close to the estimate of the Boston Consulting Group.

The highest penetration rates are predicted for the private equity / venture capital sector. However, tokenization rates of up to 10% are also seen for the real estate market.

In summary, 21Shares’ report dating back to October 2023 also predicts a trillion dollar market, they give themselves a little more wiggle room in the amount of market capitalization.

The market development in 2023

The goal of this tokenization market analysis is to see if the predictions can come true. Let’s look at the year 2023 and see what happened and how the market developed.. VanEck, one of the largest ETF issuers, published an article in September 2023 analyzing the development of the tokenization market for RWA (Real-World Asstes) in 2023.

Market Growth 2023
Source: VanEck

From the graph, we can see that the market grew to $300 million from February 23 to September 23. From zero to 300 million is a significant increase.

I think it is important to keep in mind that the crypto markets have experienced a very sharp correction since November 21 until today, and even large blockchain projects have experienced price losses of 90% from their peak prices.

It is all the more amazing that in a fierce bear market, the volume in tokenization projects has risen to $300 million.

The following chart shows the asset classes of RWA and providers that generated portions of the newly created volume.

Source: VanEck

It is clear to see that there were large increases in the area of bonds and treasuries. The service provider Ondo Finance makes a significant contribution with its projects.

The 21Shares report mentioned above has also published a very interesting study on the current market development and shows a similar development as vanEck.

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Source: Research

Tokenized U.S. sovereign debt has seen remarkable growth in the tokenization space. This report even estimates the market volume at $650 million.

Market volume in other asset classes

If you look at the other asset classes, it’s clear that the market is not just Bonds and Treasuries, but that there is already market capitalization in other asset classes as well.

Source: Research

The largest volume of US $69 billion is in fiat collateralized stablecoins. These are the well-known US Dollar Stablcoins of USDC (from Circle) and USDT (from Tether), which are crypto tokens that are pegged 1:1 to the US dollar exchange rate and mirror it exactly. The tokens are backed by different securities, so the market volume of stablecoins is guaranteed by other assets as a hedge. This is where the greatest tokenization has taken place to date, and stablecoins are traded worldwide.

In addition to stablecoins, tokenization has taken place to a considerable extent in the area of commodities. In particular, there are numerous projects in which physical gold has been brought onto the blockchain through tokenization. The best-known project in this realm is Paxos Gold, a digital token backed by physical gold. The market capitalization is 928 Million Dollar.

Furthermore, there are triple-digit million volumes in real estate tokenization and assed-based finance.

Further development

The future of development is related to the increase of more users. New users and new offers will expand the market for tokenization.

In a 2022 BNY Mellon survey of institutional investors, including asset owners e.g., pension funds, asset managers, and hedge funds (excluding crypto-specific funds or alternative fund managers), 97% agreed that “tokenization will revolutionize asset management” and “be good for the industry.”

Source: Research

According to the report of 21.Shares, there are currently 47 million users holding tokenized assets in the market. 99% of them are owners of stablecoins, so the number of users of the other asset classes is still very small.

The demand from investors for new and interesting digital analog opportunities is undoubtedly there. The major players are in the process of building up offerings and services. Blockchain technology has now reached a level of maturity that enables applications for the mass market.

The still immature regulation in the U.S. is currently a key point that slows down a faster spread. Furthermore, the concept of tokenization is not yet really widespread, especially among investors. The topic is uncharted territory for a lot of people and they have not yet looked into the benefits in depth. The providers of tokenized assets are already a step ahead here, they have recognized the opportunity and there was a lot of movement in 2023.

Due to the enormous benefits of tokenization, the future development of the market will be associated with strong growth, the advantages are simply too serious.

Summary Tokenization Market Analysis

The tokenization market is a trillion dollar market, that is for sure. Estimates from numerous major institutions paint a clear and consistent picture here, with the volume varying from $3 trillion to $10 trillion depending on the estimate and the parameters used as a basis.

In 2023, despite the difficult bear market in the crypto sector, a lot of movement was seen in the topic of tokenization. The first projects with still low volumes were implemented in numerous asset classes. It is in the nature of things that experience is first gained here with proof-of-concept projects. When well-founded experience is available, providers can enter the market with further offerings, with higher volumes and greater scope. And that is what will happen. The providers’ intention is clear and unambiguous.

One challenge for investors is the lack of clarity in the market, as there are still no major trading venues on which tokenized assets are traded. There are numerous offers from established large financial service providers, but also new FinTech companies that still lead a niche existence. Sites like the Digital Asset Compass or The Tokenizer try to bring transparency and clarity to the market by systematically recording the providers and their services and making them accessible to investors.

Ultimately, the investors are decisive for the market development, because they have to bring new money into the market. The market is at an important crossroads here.

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Source: Research

On the S-curve, which represents a typical adaptation course, the first phases have been passed. Now it’s about conquering the mass market and bringing hundreds of millions of users and trillions of dollars into the market.

The development and expansion of the Internet can be used as a reference here. The user figures show a very similar course.

Source: Research

Based on this curve, it can be predicted that in 2030 to 2031, approximately 2 billion people will use Blockchain technology and the applications based on it. The blockchain technology and the hype surrounding some blockchain projects will increasingly fade into the background. This was also the same at the beginning of the Internet adoption, there was a lot of speculation and writing about various projects. In the end, the technology has been used and some companies have divided the market among themselves.

What counts are the applications and the associated benefits. And here tokenization has a lot to offer, the benefits are huge. Tokenization is the biggest use case of blockchain technology at this point in time, next to the topic of NFTs and DeFi.

In conclusion, the tokenization market analysis reveals that something has happened in the tokenization market in 2023. The market has completed the initial phase and will grow exponentially over the next few years. The sums invested so far are significant, but still very manageable in relation to the expected size of the market, which is completely understandable based on the project approaches launched so far. In 2024, larger volumes will flow into the market and the number of users will continue to rise.

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