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McKinsey Forecasts Tokenization of Real-World Assets to Hit $2 Trillion by 2030

26 June 2024 14:43, UTC

Analysts at multinational consulting giant McKinsey & Company have concluded that the market capitalization of real-world assets (RWAs) tokenized on a blockchain could hit $2 trillion by 2030. In a new report, the analysts noted that this growth is likely because traditional financial companies are slowly adopting blockchain technology for several solutions.

Tokenization has proven to be a trusted way to push the adoption of cryptocurrencies and blockchain in general. Several industries, including finance and entertainment, can enjoy higher liquidity and easier access via tokenization, and also truly own assets by minting them as non-fungible tokens (NFTs) on a blockchain. For instance, online platforms like gambling sites those on Crypto Casinos LTD can use digital assets to ensure access to tokenized in-game items, such as casino chips, unique avatars or skins, or shares of casino streams.

According to McKinsey, the tokenization of RWAs will happen in waves. The transition will begin with assets that have proven use cases that lead to potential returns on investment. The next will be assets with smaller markets and less apparent benefits. Regardless, the consulting giant believes that widespread adoption of tokenization will take some time.

“Broad adoption of tokenization is still far away. As infrastructure players pivot away from proofs of concept to robust scaled solutions, many opportunities and challenges remain to reimagine how the future of financial services will work.”

McKinsey wrote that its $2 trillion forecast would be driven by the adoption of bonds and exchange-traded notes (ETN), loans and securitization, mutual funds, and alternative funds. The company’s report includes a pessimistic forecast of about $1 trillion and an optimistic one of about $4 trillion. However, McKinsey writes that it is less optimistic as the middle of the decade draws nearer.

The report predicts the gradual adoption of tokenization, explaining that factors will vary across asset classes. These factors may include expected benefits, feasibility, and the average market player’s risk appetite. Nonetheless, asset classes with larger market values, lower liquidity, and “less mature traditional infrastructure” will likely be faster. This could extend to examples like repurchase agreements or crypto gambling.

McKinsey warns about a “cold start problem,” a common challenge to adopting innovation. According to the report, successful tokenization requires users and products to grow together at a healthy pace. For tokenized financial assets, the task of issuance has become simpler and easily replicable. However, tokenization can only achieve true scale when users gain significant value through higher liquidity, enhanced compliance, or cost savings.

McKinsey analysts compare the expected rate of tokenization to the rate of adoption recorded among consumer technologies like smartphones, social media, and the internet, as well as financial innovations like credit cards and ETFs. The analysts note that these assets typically see 100% annual growth within the first five years of inception and then record a slowdown to about 50% after that. After ten years, the annual growth range falls further to 10%-15%.

The report then explains that early movers able to “catch the wave” may reap more benefits than others. Pioneers in any sector that benefits from tokenization could quickly gain an oversized market share and set the market’s agenda for standards. However, some institutions will be in what McKinsey calls the “wait and see” mode. Unfortunately, this category may be too slow, considering that tokenization is already at a tipping point.