In 2023, the realm of asset tokenization and real-world assets (RWA) has captured the attention of both retail and institutional investors. This exciting fusion of professionally managed products and digital asset mechanics has advised over 40 clients on tokenization strategies and issuances so far.
Here’s what’s been causing a buzz in these markets during the third quarter of 2023.
The Blockchain Savings and Final Touches
For those venturing into this domain, the most significant efficiencies are attained through end-to-end digital systems, resulting in substantial savings compared to traditional processes. For example:
- Goldman Sachs Digital Asset Platform (GS DAP) achieved 15 basis points in savings with its €100 million digital BOND issuance, leading to an extra €150,000 in return transferred to Union Investment as the sole purchaser.
- JP Morgan’s Onyx Digital Assets (ODA) anticipates savings of $20 million on an expected volume of $1 trillion tokenized repos by the end of 2023.
- Broadridge’s Distributed Ledger Repo (DLR) is saving selling clients like Societe Generale $1 million for every 100,000 repo transactions.
- Equilend launched 1Source as a distributed ledger-based securities lending solution, aiming to save the securities lending industry approximately $100 million in collective costs.
- Financial services platform Intain reports 100 basis points in savings by reducing SME loan lifecycle fees from 150 bp to 50 bp through Hyperledger and Avalanche blockchain solutions.
- Vanguard is leveraging R3’s Corda through Grow Inc. to achieve straight-through processing, saving 100 work hours per week.
- Liquid Mortgage has slashed mortgage-backed securities (MBS) reporting from 55 days to 30 minutes on the Stellar blockchain.
Money Markets and Treasury Bonds as the Ripest Fruit
Asset managers and issuers are embracing tokenization workflows by experimenting with money market and treasury products. These tokenized assets generate yields that can be seamlessly transmitted to clients, all on the blockchain.
While alternative product strategies such as digital-native private equity share classes by Hamilton Lane are being developed, money markets yield ~5% annually in low-risk segments. This asset class amassed nearly $700 million in on-chain capital by the end of the third quarter of 2023, marking a staggering increase of almost 520% to date.
Distribution of Tokenized Products through Institutional Client Bases
One of the weak points of the tokenization industry thus far has been the actual product distribution and capital syndication. Institutions are transitioning beyond mere asset tokenization for operational uses and savings (repos, collateral management) and are now placing tokenized products into their own client bases as buyers.
Citi leads the charge here, offering digital corporate bonds through Singapore’s BondbloX to its private banking and wealth management clients in Southeast Asia. UBS, building on its previous $400 million digital BOND issuance for high-net-worth clients, introduced an Ethereum-based money market fund, also in Singapore.
As leading companies like JP Morgan and Goldman Sachs continue to develop their digital suites, their private banking, wealth and asset management, and alternative assets teams are expected to act as distribution channels, unlocking significant capital that retail brokers struggle to access.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.