The tokenization and fractionalization of real-world assets (RWAs) looks to be the next major trend in the blockchain sector. This development is facilitating the integration of tangible assets like fine art or real estate into virtual investment platforms. By doing so, it not only makes traditionally high-value assets more accessible to a broader pool of investors but also promotes a coexistence between blockchain technology and traditional finance systems.
Crypto and blockchain products coming back down to earth has translated into heightened authentic interest from massive institutions that can take mass adoption to a new level.
- Preparation, knowledge and trust are essential to foster an effective and efficient working relationship between the traditional and decentralized finance spaces.
The U.S. Securities and Exchange Commission (SEC) has to make some big decisions soon.
Though now delayed, the SEC decision surrounding the spot Bitcoin ETF filing from BlackRock has everyone even remotely involved with crypto on the edge of their seats, and for good reason. BlackRock has more assets under management than most countries’ entire GDPs, and having the world’s largest asset manager entering the crypto game will send reverberations across the entire landscape. More importantly, an SEC approval would signal to other leading traditional financial institutions that crypto is back on the menu as an investment and product option.
But if the crypto and blockchain community has learned anything, it’s that nothing is promised. Despite BlackRock’s near-flawless ETF approval rate and surprise courtroom wins for Grayscale and Ripple Labs against the SEC — truly, anything can happen.
So, let’s say we expect the unexpected, and the SEC rejects BlackRock’s ETF filing. It’s unlikely that this will dampen crypto’s institutional ambitions and strides to continue partnering with traditional financial infrastructures. You can even see this change in trajectory throughout the industry’s bear market, where the projects still left standing have shifted gears towards sustainable growth and technical, practical use cases.
Beyond the ETF
With shifting developments come shifting trends, and the institutional blockchain space is no exception. But with that in mind, it is vital to remember that people behind the institutions guide their decisions and strategies amid these trend shifts. Of course, it’s not a good idea to hop on every trend in any field, and the traditional financial space is usually well aware of that.
But what should the human force behind these traditional institutions be prepared for in the blockchain space apart from the incoming SEC decision and ETF filings? The directions point towards the rise of tokenized real-world assets (RWAs).
If you’re outside of the blockchain bubble, tokenized RWAs have been steadily climbing the ranks as a viable, long-term way to utilize blockchain technology. Essentially, tokenizing a real-world asset involves creating a virtual investment vehicle that’s linked to a tangible item. That tangible item can range from precious metals, art, collectibles, and real estate.
In practice, tokenized RWAs open up the gates to a few differing uses. Let’s say you buy a house — an immutable record of your ownership can be put on the blockchain instead of receiving a deed. But tokenizing RWAs also allows assets to be fractionalized, meaning multiple people can own or invest in a fraction of a single physical asset.
Some projects centered around fractionalized RWAs did emerge in the last crypto bull run, but they usually honed in on NFTs and sustained themselves on diminishing hype cycles. Now, the focus on fractionalizing tokenized RWAs targets market-resistant asset classes where investor appeal is perennial. By doing so, fractionalization also allows assets with a high-cost barrier to become more accessible to everyday investors, such as fine art or precious metals. The average person might not want to own a portion of one single pair of rare sneakers, but owning part of a Warhol could be more enticing.
DeFi and TradFi Partner
Tokenized and fractionalized RWAs show what can happen when crypto and blockchain technology work in tandem with traditional finance and not in opposition to it. They also demonstrate a viable path forward for institutions beyond whatever happens with the slew of crypto ETFs sitting on the SEC’s docket.
However, creating digital assets for institutional use isn’t a simple plug-and-play task. There are real technological, security, and regulatory hurdles to clear in bringing RWAs on-chain and making them available for the public to interact with. Yes, many countries and international regulators are moving towards some type of regulatory clarity with regard to blockchain and cryptocurrency. But that means the people working for traditional financial institutions have to be firmly aware of what they’re getting into.
That kind of infrastructure creation to ensure traditional financial institutions are offering digital assets safely and in line with regulatory requirements can be daunting. However, some crypto-native companies aim to help carry the weight. GK8, for instance, tailors its product line for institutional use—covering everything from custody and enterprise-level security to tokenization.
GK8 serves as an example of how traditional institutions can lean on crypto-native companies for their expertise and prowess in navigating the sector’s ever-evolving threats. Many crypto companies have spent years perfecting and battle-testing their products in anticipation of institutional use, which is what makes them stand out.
Interest from Institutions
Crypto and blockchain products coming back down to earth has translated into heightened authentic interest from massive institutions that can take mass adoption to a new level. But with so many competing paths and uncertainties hanging in the air, it’s hard to tell what exact next steps institutions will take. Either way, preparation, knowledge, and trust are essential to foster an effective and efficient working relationship between the traditional and decentralized finance spaces.
Founder, ENTREPRENEUR LEADERSHIP NETWORK® CONTRIBUTOR
Ariel Shapira is a father, entrepreneur, writer and speaker.
Opinions expressed by Entrepreneur contributors are their own.
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