In the report, ‘Money, Tokens, and Games: Blockchain’s Next Billion Users and Trillions in Value’, Citi believes we are approaching an inflection point, where the promised potential of blockchain will be realised and be measured in billions of users and trillions of dollars in value.
Further, Citi sees tokenization as the main driver in the blockchain space to finally accelerate the entire industry to a critical point of mass adoption. As per the report, tokenization of financial and real-world assets could be the killer use case driving blockchain breakthrough with tokenization expected to grow by a factor of 80x in private markets and reach up to almost USD 4 trillion in value by 2030.
The authors distinguish between traditional securities being tokenized and security tokens, which they call native digital security tokens. Those two categories of tokens often end up in the same basket, but looking at them separately sheds more light on their meaning.
In the report, tokenised outstanding securities refers to the immobilisation of an underlying traditional security in a digital infrastructure and reissuance in a tokenized format. This is currently one of the most common and widespread approaches. The use of DLT to record transfer of securities can improve the efficiency of existing processes as paperwork and manual processes are eliminated (subject to local regulatory requirements), while also allowing for fractionalisation and use as collateral.
Citi believes that the second token category, the native digital security tokens, will have the most significant long-term impact. The publishers explain that native digital security tokens refer to the process of issuing fresh securities directly onto DLT infrastructures and holding them in DLT-linked wallets. While outstanding examples remain limited at the moment due to regulatory constraints, this is where impact is expected in the long-term.
The report’s authors are well aware that a coming boost of blockchain technology has been talked about for a lot of time, with few clear signs or evidence of actual impact to be seen.
However, the industry has put in immense work over the years and progress has been made. Regarding asset tokenization, an entirely new global industry has risen since around 2018. The Citi report states that those who have been promised the benefits of blockchain for many years might roll their eyes. But this time may well be different.
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