Tokenization Takeoff: APAC's New Asset Class
Tokenization Takeoff: APAC's New Asset Class
The ability to take real-world assets and tokenize them on a blockchain platform has been gaining attention in the financial industry. This process, known as asset tokenization, allows for the digital representation of physical assets such as real estate properties or art pieces. By digitizing these assets, they can be more easily traded and accessed by a wider pool of investors.
This article will explore case studies where the tokenization of real-world assets has had a positive impact on the economy in the Pacific-Asia region and how investors can navigate the diverse landscape of tokenized assets. We'll also explore the challenges this industry faces and the future potential it holds.
1. Case Studies
RWAs facilitate quicker, more transparent transactions while reducing administrative delays and costs. By storing Real World Assets (RWA) on a blockchain database, transparency, integrity, and cost efficiency in asset management are significantly enhanced.
Real Estate
One example of successful tokenization of real estate assets in APAC is the project launched by Japan-based blockchain startup Kenedix, SMBC Trust Bank, Nomura Securities, and BOOSTRY, as it introduced Japan's inaugural real estate security token offering under the Kolet brand, representing beneficiary rights to 462 smart rental homes. This blockchain-driven initiative seeks to improve accessibility and transparency in property investments. Kenedix aims to significantly expand its tokenized real estate portfolio by 2030.
The benefits of tokenization in real estate are easily quantifiable. By digitizing traditional assets, investors can now access fractional ownership with lower minimum investment requirements, providing greater liquidity and diversification opportunities. With reduced transaction costs and improved asset management efficiency, both issuers and investors can enjoy a more streamlined and cost-effective process.
Moreover, tokenization opens up new markets and investment opportunities for both domestic and international investors. By removing geographic barriers and allowing for fractional ownership, real estate assets can now be easily traded on digital asset exchanges, providing increased market access and liquidity.
Wealth is often stored in real estate, and the tokenization of this asset empowers individuals, especially those who previously did not have the means to invest in real estate, to take control of their financial future. However, other assets such as art, commodities, and intellectual property can also benefit from tokenization.
Art and Collectibles
For art investors, tokenization can provide more affordable access to high-value pieces and allow for easier trade and transfer of ownership. It also enables artists to tokenize their artwork, creating a new revenue stream and allowing for crowdfunding opportunities. Luc Falempin, CEO of Tokeny Solutions, expressed that RWA tokenization is quickly gaining attention in the Asian markets. The real-time data is one of the main benefits of tokenization for the art market as it allows for transparent and efficient tracking of asset values. ADDX is another example of a pioneering art tokenization marketplace.
With this increased accessibility and transparency, the art market may become more attractive to a wider range of investors, leading to potential growth and diversification within the industry. The problem with traditional art investments is that they are often illiquid and expensive to trade. Tokenization solves this issue, making the market more appealing and allowing for easier diversification of art portfolios.
Commodity Markets
The commodity market can also benefit from tokenization as it allows for easier and more efficient trade of commodities such as gold or oil. By creating digital representations of physical assets, tokenization eliminates the need for intermediaries and reduces transaction costs. Bitcoin is often promoted as a better store of value than commodities such as gold, but with tokenization, even gold can become a digital asset that is easily traded and stored. Tokenization transcends borders and regulations, providing increased market access for both buyers and sellers.
Truflation.com is a prominent example of how tokenization is already disrupting the commodities market. With China being a major gold producer and consumer, tokenization is gaining traction in the Asian market as well. This presents a new opportunity for investors to diversify their portfolios and gain exposure to the commodity market through tokenized assets. Verification costs can be saved through tokenization as well, as the process can be done on the blockchain in a transparent and secure manner.
Intellectual Property
With these major assets being tokenized and made more efficient thanks to blockchain technology, one must wonder where the asset of I.P. (Intellectual Property) falls into this equation. Can we expect to see tokenization of patents and copyrights in the near future? This could greatly benefit creators as it would provide a more secure and transparent way to manage their intellectual property rights. IP8Value is one such company that is taking the lead when it comes to IP in the RWA industry.
As the network expands, the community can benefit from increasing token prices, explained Manh-Hung Tran, managing lawyer at BMVN International Baker McKenzie's local affiliate in Hanoi. Fanbases and creative communities could benefit from tokenization as well, allowing them to have a stake in the success of their favorite artists and creators. Although the complexity of this system is still being debated, many Asian professionals are optimistic about the potential of tokenization in the intellectual property space.
Photo by Unsplash on Kamil Molendys
2. Cost Efficiencies and New Revenue Streams
Blockchain technology has the potential to revolutionize traditional asset management processes, making them more streamlined and efficient. By utilizing a decentralized ledger system, blockchain allows for secure and transparent record-keeping of transactions. This eliminates the need for intermediaries, reducing operational costs for both asset managers and investors.
“One of the big things we have seen the last 5 years is we see a log of blockchain startups coming and saying that we can completely tokenise your bank ledger and tokenise a lot of diff things but those will never be a priority for us due to the regulations and policies and such. What will be interesting for us is how can we actually benefit from tokenisation?” - Goh Wee Kiat, Open Innovation Lead, Bank Julius Baer
The use of smart contracts on the blockchain can also automate certain tasks such as distribution of dividends or interest payments, further reducing manual labor and costs associated with these processes. Additionally, blockchain enables fast settlement times, removing delays that may occur in traditional investment transactions.
Liquidity has always been a challenge for certain asset classes, such as private equity and real estate. However, with tokenization, these traditionally illiquid assets can become more liquid by being represented as digital tokens on the blockchain. This opens up new opportunities for investors to access these previously inaccessible asset classes and potentially increase their portfolio diversification.
Another interesting aspect of tokenization is the potential for creating new revenue streams. Asset managers can generate fees from token issuance, trading, and custody services. Imagine a scenario where a traditional real estate property is tokenized and investors can buy and sell fractional ownership of the property through digital tokens.
The asset manager can earn fees from each transaction, creating a steady stream of revenue. This not only increases their profitability but also provides investors with more options and flexibility in managing their assets.
3. Challenges and Best Practices
The potential of tokenizing RWA is promising but it's not without its challenges. One of the main challenges is integrating tokenization with traditional financial systems, which includes addressing technical and regulatory hurdles. This can be a complex process as it requires coordination between different stakeholders such as banks, regulators, and technology providers.
Another challenge is the security aspect of decentralized systems. Hacking and other cyber threats have been a major concern for blockchain networks. To mitigate these risks, secure custody solutions such as cold storage and multi-signature wallets have been implemented. Encryption of data and regular audits also help to strengthen security in blockchain networks. Smart contract vulnerabilities are also a major concern, as any bug or loophole in the code can lead to significant financial losses. As such, regular code audits and rigorous testing processes are essential to ensure the integrity and security of smart contracts.
In terms of technical challenges, one major concern is ensuring interoperability between different blockchain networks and protocols. This is crucial for ensuring seamless transfer of assets across different platforms and maintaining transparency and security throughout the process. Collaborative efforts between industry players and standardization of protocols can help overcome this challenge.
On the regulatory front, there is a lack of clarity and consistency in laws and regulations surrounding tokenization. This can create uncertainty and hinder adoption of tokenized assets. It is important for regulators to provide clear guidelines and frameworks for tokenization, while also considering the complexities of cross-border transactions.
When it comes to best practices in tokenizing RWA, there are a few key areas that should be considered:
Standardized protocols: As mentioned earlier, standardization of protocols is crucial for ensuring interoperability and seamless transfer of assets. This also helps build trust and credibility in the tokenized asset market.
Collaboration with industry stakeholders: The success of tokenizing RWA will heavily depend on collaboration between banks, technology providers, regulators, and other key players in the financial system. Working together can help address challenges and promote wider adoption.
Robust risk management practices: With the increasing popularity of tokenized assets, it's important to have robust risk management practices in place to mitigate potential risks such as cyber attacks or fraud. This includes measures like secure custody solutions and thorough due diligence processes.
Citi, in collaboration with Wellington Management and WisdomTree, has successfully completed a proof of concept for the tokenization of private funds. This example shows the potential for blockchain technology to transform traditional financial processes.
4. Building a Supportive Ecosystem
It's important that investor education is made a top priority in the world of tokenization. As this method of fundraising gains more traction and popularity, it's vital that investors are well-informed about the benefits, risks, and potential pitfalls associated with it. Without proper risk management and understanding of the market, investors may fall victim to scams or make ill-informed investment decisions. This can stifle the growth of the tokenization market and hinder its potential to revolutionize traditional finance.
When it comes to fostering a thriving tokenization ecosystem, various stakeholders play a crucial role. These include exchanges, custodians, and investors.
- Exchanges: Exchanges serve as platforms for trading tokenized assets and provide liquidity to the market. They also play a vital role in setting standards for trading and ensuring compliance with regulations.
- Custodians: Custodians are responsible for securely storing and managing the assets underlying tokenized securities. They also provide services such as asset verification, anti-money laundering checks, and legal compliance.
- Investors: Investors are a key driving force behind the tokenization market. With the potential for increased liquidity, fractional ownership, and access to a wider range of investment opportunities, more investors are showing interest in this space.
In addition to these stakeholders, institutional support is also crucial for the growth of the tokenization ecosystem. Providers are actively working to support institutions in developing the necessary internal capabilities to participate in this market. These include technological infrastructure, expertise in blockchain and tokenization, and compliance with regulatory requirements.
As the demand for tokenized assets grows, it is essential for institutions to have the right support and resources to enter this space. This will not only benefit the institutions themselves but also contribute to the overall growth and success of the tokenization market.
A healthy and sustainable tokenization ecosystem such as the collaborations between tokenization platforms and wallets enables a seamless asset management of RWAs. Clear regulations such as performance of due diligence on the issuer and legal structure f the issuer are just two examples of compliance that can provide confidence to investors, companies, and custodians, facilitating market growth. In contrast, unclear or inconsistent regulatory frameworks can impede progress and hinder adoption. The balance between free market innovation and regulatory oversight is crucial for a flourishing tokenization market. Government authorities must strike this balance by providing clear guidelines and regulations for the industry to operate within.
“Tokenisation of deposits, one area where Citi is actively playing, and we do believe that this will disrupt the payment ecosystem which is a building block of all types of digital assets across the board. So the infrastructure space in the payments landscape, tokenised payments and deposits – and any type of tokenised banking products.
New form of digital payment methods that are evolving like the CBDCs is an example. Some of the payment rails are really becoming a big medium of change for a lot of players in the industry – buy side, sell side, trader, manufacturing etc. an area that we are actively participating.” - Sandip Patil, Asia Liquidity Management Services Head and Digital Assets Lead, Citi Bank
Photo by Kanchanara on Unsplash
5. Future Outlook
As we've explored, tokenization has the potential to revolutionize traditional financial markets by providing increased accessibility, liquidity, and efficiency. The market for tokenized assets in APAC is expected to grow significantly in the coming years as regulatory frameworks become clearer and technology continues to advance.
In 2023, the global tokenization market was valued at USD 2.81 billion. It is projected to grow to USD 3.32 billion in 2024 and is expected to reach USD 13.20 billion by 2032. This reflects a compound annual growth rate (CAGR) of 18.8% throughout the forecast period from 2024 to 2032.
With the increasing interest from institutions and investors, it is likely that we will see a rise in disruptive business models enabled by tokenization. This could include new forms of financing, such as crowdfunding through security tokens or fractional ownership of high-value assets like real estate.
In addition, emerging trends within the tokenization space are also worth noting. STOs, which offer a more regulated form of fundraising compared to initial coin offerings (ICOs), are gaining traction as a popular fundraising method. Fractional ownership, where multiple investors hold a share in an asset, is also becoming more prevalent. And with the rise of decentralized finance (DeFi), we may also see the tokenization of derivatives and other complex financial instruments.
Securities laws, anti- money laundering regulations, and other financial regulations have traditionally been a major barrier to the tokenization of real world assets. However, as blockchain technology continues to evolve and governments around the world begin to craft new regulations for digital assets, there is potential for significant changes in this space.
When it comes to technological advancements, the continued development of decentralized finance (DeFi) protocols and smart contracts has opened up new possibilities for the tokenization of real world assets. These technologies allow for the creation of more complex financial instruments and automated processes, making it easier to tokenize a wide variety of assets.
Summary & Conclusion
Ownership of assets empowers wealth growth and economic participation, but traditional markets are often inaccessible and inefficient. Tokenization digitizes assets for a more inclusive and efficient market. Despite challenges like regulatory issues and tech limits, its potential is significant, especially in the APAC region where interest is growing.
Tokenization facilitates disruptive models like crowdfunding via security tokens and fractional ownership of high-value assets. Trends such as STOs and DeFi further enhance its potential to revolutionize markets.
As technology advances and regulations adapt, innovation and growth are expected in tokenization. Staying informed about this evolving market prepares us for its impact on the future of finance and ownership.
Learn More At DigiAssets APAC 2025
To learn more about the latest developments in tokenization and how to navigate this evolving market, join us at DigiAssets APAC 2025. This conference will bring together experts, innovators, and stakeholders to uncover these topics on:
Accessing regulatory considerations, market maturity, and investor confidence.
- How are Asian financial institutions warming up to tokenization, what are the major security concerns, and what are the tangible positive impacts on the real economy?
- How can you navigate the diverse landscape of tokenomic models and identify the most suitable model for your investment objectives to maximize returns?
Exploring tokenization opportunities.
- How to leverage blockchain technology to gain access to liquidity in traditionally illiquid assets, drive faster settlement, and lower costs?
- How can we then adapt our investment operations and trading infrastructure to take advantage of blockchain’s potential and ease common pain points?
Unlocking opportunities in Real Estate Tokenization.
- How blockchain technology is transforming the way we invest in and manage real estate assets and how can you leverage this for enhanced liquidity, accessibility, and transparency?