Tokenization set to transform real estate and financial services

25 January 2024 4 min. read

With hype growing and more use cases becoming clear, the total value of tokenized assets could grow to reach $10 trillion by 2030. Most of the near-term use cases of relevance will be in financial services and real estate, according to a report from management consulting firm Roland Berger.

With real potential to disrupt various global industries, including real estate, manufacturing, and art, tokenization is set to transform how the world manages and trades assets. This technology offers benefits like increased liquidity, accessibility, and transparency, as well as the ability for fractional ownership.

Tokenization is a process where real-world assets, like property or stocks, are converted into digital tokens on a blockchain, making them easier to trade and manage. These tokens represent ownership and come with information and digital rights, allowing for more accessible and transparent transactions.

What is the future market potential of Tokenized Assets

Source: Roland Berger

This usage of tokens works to simplify the process of buying, selling, and managing assets, bringing benefits like lower costs, increased liquidity, and broader access to investments, even for smaller investors.

Of the $10 trillion worth of assets that are expected to be held in tokenized form by 2030, real estate is projected to the industry with the largest amount of assets, according to the study by Roland Berger. The authors predict that real estate will encompass around $3 trillion worth of tokenized assets by the end of the decade.

The analysis points to five key sectors stand to benefit the most from tokenization: financial services, industrial (including manufacturing, construction, and waste management), energy and utilities, public sector, and real estate. These industries can streamline operations, enhance transparency, and expand investment opportunities through tokenization.

Breaking assets into fractions

One major benefit that tokens can bring to financial services is the ability to break up previously illiquid assets into smaller, bite-size pieces. This is referred to as fractionalization. These fractions of investments can make investing more accessible to those that hit barriers with large assets that otherwise have high investing thresholds.

Tokenization set to transform real estate and financial services

Source: Roland Berger

“Our tokenization platform’s smart certificates can be fragmented without prejudice to the property’s real value. Once fragmented, they grant each owner a digital copy and a unique key, ensuring that each owner receives their dividends automatically,” said a founder of US tokenization platform surveyed in the report.

One use case can be found in Africa, where Nigeria’s government is turning to tokenization to transition high value stakes in mining assets (affordably only for the very few with certain risk investment profiles) into more fractionalized assets that fits the bill of a much larger group of investors.

The challenges

Despite the promising outlook, the adoption of tokenization also faces challenges, says Roland Berger, including the complexity of the technology, lack of clear and consistent regulations, and limited understanding of blockchain among the public. Regulatory success factors include clear definitions, market accessibility, technology governance, and a risk-based approach.

For organizations that want to make a successful foray into tokenization, they should start by defining a robust strategy, one that aligns with their digital strategy and capabilities. Collaboration with technology experts is deemed indispensable, given the complexities of bringing the promising technology to life.

Though tokenization offers significant potential, its widespread adoption will depend on overcoming regulatory challenges, increasing understanding, and embracing the opportunities it presents.

“Our vision is to make it possible for our clients to take full advantage of [the] rationalization and efficiency gains that the distributed ledger technology offers in this field,” said a deputy CEO at a Swiss private bank interviewed for the report.