New chapter in the blockchain success story
Bastian Stolzenberg
Director, Blockchain Assurance, PwC Switzerland
The invention of blockchain in 2008 marked a milestone in the digital transformation of the financial world. Since then, the technology has evolved in many ways and produced application variants for a wide range of areas. Not all of them have been able to establish themselves and some have yet to prove their economic added value. Now a new type of application is opening a promising chapter in the history of blockchain: the tokenisation of real world assets.
In the beginning was Bitcoin
Bitcoin is regarded as the first application of distributed ledger technology (DLT) - also known as blockchain. It was created after the 2008 financial crisis, which had damaged investor confidence in traditional financial systems with intermediaries. In the decentralised financial system of blockchain, each participant contributes to maintaining and validating the system. This eliminates additional costs for centralised administration.
Today, Bitcoin is primarily used as a digital trading currency. In January 2024, the US Securities and Exchange Commission (SEC) authorised eleven new exchange-traded funds (ETFs) based on Bitcoin. The disruptive idea at the time has become a cyclically resistant investment solution. It is not for nothing that Bitcoin is referred to as "digital gold".
The fine art of stability
In the wake of Bitcoin, many types of cryptocurrencies have emerged and established themselves. One of these is the stablecoin principle. Here the name is a concept: as a bridge between the cryptocurrency and real money, stablecoins are linked to a less volatile value such as a reserve currency or use algorithms to maintain their fixed price. Some reserve currency-linked stablecoins have a market capitalisation of well over USD 100 billion. This has even led to various central banks starting to look into or issue their own central bank digital currencies (CBDC). Less glorious examples can be found among algorithmic stablecoins. The crash landing of TerraUSD in May 2022 made it clear that not every stablecoin issuer can fulfil its promise.
Diverse ideas and solutions
Numerous other blockchain use cases have emerged over time. Here is a selection of applications that hold up, even if they have not yet achieved a widespread social breakthrough.
From fractions to multiples
How can the advantages of the physical and digital financial world be combined? This question has always driven the evolution of blockchain applications, both on the part of FinTechs and traditional financial service providers. One solution that is likely to be more than just hype is the tokenisation of real world assets.
Tokenisation converts the partial or full ownership of a tangible or digital asset in the real world into a clearly defined digital form - a token. Tokens can represent both tangible physical and intangible assets, i.e. traditional investment products such as shares or investment funds, but also real estate, works of art, luxury goods, patents, data and much more.
Popularisation of investor privileges
Tokenisation enables a financial ecosystem that makes real-world value more accessible than ever before - not only for a wealthy or institutional investor base, but also for the general public (see Fig. 1). Fractional ownership allows more people to participate in investment activities. While assets such as art, wine or building objects were previously difficult to divide or trade, they can now be tokenised and easily transacted via the blockchain.
The Swiss provider Splint Invest provides an impressive example of how the principle of fragmentation is not a hype, but a sustainable solution. The digital platform for alternative investments pre-finances assets and divides them into smaller fractions - known as splints. These asset fractions are available from as little as EUR 50.
Tokenisation can accelerate the speed of transactions, reduce ownership and transaction costs and increase the liquidity and therefore tradability of previously illiquid assets. Finally, the security of investments is improved as the blockchain provides transparent and unalterable proof of ownership.
Best prospects, long way to go
According to expert estimates, the tokenisation of real assets is likely to create a market worth at least USD 10 trillion by 2030.1 There are still huge challenges ahead of this potential. On the one hand, countless blockchains with different technologies are used, which makes interoperability difficult. Secondly, trading platforms such as SIX Digital Exchange or Taurus Digital Exchange, which tackle this problem with standardised technology, still lack larger trading volumes. Furthermore, the tokenisation of assets does not automatically make them more attractive. And finally, there are still no internationally harmonised regulations and standards for non-discriminatory market access.
Conclusion
The blockchain can look back on an eventful history - with resounding successes, spectacular crashes and sometimes a lot of air for little added value. The tokenisation of real assets is now intelligently continuing this story. Ownership is being popularised through fragmentation. The advantages are impressive: elimination of intermediaries, greater liquidity, more trading activity, faster processing, lower issuing and transaction costs, more transparency and therefore more security. Standardised technology, broader acceptance and larger base volumes on the trading platforms are needed to exploit this potential, which is worth billions.
1 See "Tokenisation of real-world assets", Roland Berger, 2023
