Tokenization is coming with a bang!

BlackRock CEO Larry Fink said about the securities they tokenized at Onyx, a bank started by JP Morgan, invested in by Rockefeller Group and announced in November 2022, that:

"The next generation for markets, the next generation for securities, will be tokenization of securities."

I use the word tokenization here in the sense of transferring real assets in the world to a blockchain. You probably see the term tokenization thrown around a lot.

Now let me explain this new notion of tokenization coming with a bang.

Digitalization of assets
Real assets in the world need to be digitalized before transferring them to a blockchain. For example, until 2003 Turkish companies going public were ensuring a printing house to print their share certificates , so that share certificates were traded in physical format. In that year Merkezi Kayıt Kuruluşu (MMK) (Central Securities Depository) was formed and all share certificates of companies going public were digitalized.  Eventually hardcopy share certificates disappeared. Shares of companies going public are now stored in digital format in the central database of MMK and traded within Istanbul Stock Exchange.

If all shares of companies going public in Turkey will be transferred to a blockchain one day, transfers must be performed at MMK or transferors must start working at the database of MMK, because that is where all update records are stored.

Another example is that if deposits kept in TL or US$ in banks will be tokenized, the process must be started by each bank in its database.

Another important bank which is a partner of the BlackRock fund is Citi, and it started fast. The report it issued in early March 2023 (Reference 1) estimates that assets worth US$ 5 or 6 trillion will be tokenized and stored in blockchains or DLTs in 2030.

The report estimates that:

a) 2030 non-financial corporate and quasi sovereign debt US$ 187 trillion, 2030 estimate US$ 1.9 trillion tokenized.
b) 2030 real estate funds US$ 20 trillion, 2030 estimate US$ 1.5 trillion tokenized.
c) 2030 private equity / venture capital US$ 7 trillion, 2030 estimate US$ 0.7 trillion tokenized.
d) 2030 securities financing and collateral US$ 42 trillion, 2030 estimate US$ 0.5-1.0 trillion tokenized.
e) 2030 trade finance US$ 12 trillion, 2030 estimate US$ 1.0 trillion tokenized.

In other words, the report estimates that assets worth US$ 5 to 6 trillion will be transferred to a blockchain. However, there are many other types of asset not mentioned in the report.

Similar to MKK in Turkey, many securities are stored in digital format in computer databases in other countries.  The said securities are traded in digital stock exchanges too. Citigroup considers that assets managed by funds are the fastest to digitize, because it believes that persons authorized to decide to tokenize such assets will make such decision fast by viewing the profit-loss equation.

I think different!
I think different from Citi! After all, I have lesser things to lose than Citigroup.

Recently I held a meeting with a friend of mine, who is the owner of one of the largest crypto asset owners in this country. He told me that in his opinion transition to Web3 would be slower than expected, because institutions holding the assets in the present would not let them go easily. I agree with him. However, I believe that the idea that tokenization will be started in hitherto unattended areas because it will be easier to act there is insufficient. There are many investors seeking opportunity to enter many closed areas.

The BlackRock fund is one of them: the Citi report estimates that assets worth US$ 5 to 6 trillion will be transferred to a blockchain in attended areas within 6 to 7 years.  JP Morgan’s Onyx Bank, a partner of BlackRock, is more radical, they think deposit accounts kept in banks will be transferred fast to blockchains.

In my opinion there is a wholly different area mentioned in neither the Citi report nor the earlier JP Morgan report: tokenization of commodities as gas, oil, fertilizer, metals, wheat, etc. The above mentioned two reports do not mention the efforts made to tokenize commodities worth trillions of US$. These two banks prefer to get their own way. The grand total of the figures given in these two reports indicate that at least US$ 10 to 12 trillion rather than US$ 5 t6 6 trillion will be tokenized by 2030. And this figure does not take into account tokenization of commodities!

Tokenization of commodities:
In my opinion tokenization of commodities will grow fast in the next 3 to 5 years and cause a huge transformation. The reasons are as follows:

1) Transition from a unipolar to multipolar word makes de-dollarization one of the most important and fast developments of the word (see Reference 1 and 2). Nobody knows what will replace the US$ after it loses its reserve money status. There is no clear candidate. I guess one or two candidates will emerge soon. One is tokenized gold and the other a tokenized commodity basket or BRICS countries’ fiat money basket. Depending on the courage and speed of the BRICS countries to innovate, they may present a candidate too. And this new asset may affect tokenization in near future.

2) Today Russia is the largest commodity exporter in the world, leading with 11% market share, but it is in the middle of the list of countries because its GDP is less than triple of Turkey. The West ripped off Russia for good to date! In the new conjuncture Russia is a candidate for maximum innovation for tokenization of its commodities.  It will aim to increase its income in proportion with its market share, but there is no way but the blockchain technology for it to go for this purpose. Russia is banned from banking transactions, SWIFT transfers and traditional markets using US$ and Euro after it has declared war to Ukraine.

Conclusion:
In my opinion, 2030 is an overestimation for tokenization of assets worth US$ 5 to 10 trillion. Observations I made indicate that the said level will be reached in 2025 or 2026. I think by 2030 the US$ will not be used and the total value of the assets (Bitcoin, Ether and many altcoins) existing on the blockchains will reach US$ 30 to 40 trillion or more. This is not a soothsaying. The ‘conservative’ figures given in the Citi and JP Morgan reports equal to 1/3 of my prediction anyway. In summary by 2030 we will not say ‘US$’ trillion, we will use a different term and express amounts by using a new terminology for different assets.
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Note: The first version of this article was published on 4 May 2023 in BTCHaber.com.

Cemil Şinasi Türün
Chairman of Advisory Board
Cropto

References:
1- https://icg.citi.com/icghome/what-we-think/citigps/insights/money-tokens-and-games
2- https://tr.cointelegraph.com/news/the-escape-from-the-dollar-is-increasing
3- https://unherd.com/2023/04/will-america-win-from-de-dollarisation/