All assets will eventually be tokenized, from stocks to bonds to commodities. At least that's the perspective of many crypto-industry executives who predict that most, if not all, of modern finance will eventually run on digital rails. Just put it on the blockchain, as it were.
Such thinking lurks behind a new report from the World Economic Forum, the organization whose annual meeting in Davos, Switzerland, has been, at least prior to the coronavirus pandemic, a venue of choice for the global financial and regulatory establishment. (Board members include European Central Bank President Christine Lagarde, BlackRock CEO Larry Fink, Carlyle Group co-Executive Chairman David Rubenstein and the Indian billionaire businessman Mukesh Ambani.)
"Many anticipate a future blurring of the lines between traditional publicly listed equities and tokenized private company shares," according to the report, published Thursday.
There's still a long way to go before any of this blurring is commonplace, the report suggests – partly because of friction from incumbent financial institutions and their overseers likely to resist change.
"While greater digitization is inevitable, substantial headwinds may continue to limit adoption of distributed-ledger technology solutions, including limited leadership buy-in and uncertain business cases, the need for significant restructuring of business operations, challenges relating to bridging legacy systems with new solutions and perceptions about regulatory uncertainty," the report reads.
What's perhaps most notable about the 100-page report is the length to which the authors go in estimating the potential size of the traditional markets that might be ripe for disruption.
In all, it works out to $866.9 trillion:
- Equity markets: $95 trillion
- Debt markets: $106 trillion
- Securitized products: $10 trillion
- Derivatives: $560 trillion
- Securities financing: repurchase agreements $4 trillion, securities lending $2.9 trillion
- Asset management/fund administration: $89 trillion.
The upshot? The opportunity could be substantial for an already fast-growing crypto industry with a current market capitalization currently around $2.3 trillion.
But it might take a while, according to the World Economic Forum.
“There is no agreed-upon path for market-wide adoption,” according to the report. “Market participants are far from adopting at scale.”