In March, Citigroup suggested that asset tokenization would become a $5 trillion market opportunity by 2030. This market is preparing to host new generation altcoin projects instead of Bitcoin and Ethereum.
Which altcoin sector will benefit from Wall Street’s $5 trillion crypto prediction?
According to Citigroup, the next big wave of adoption of the crypto market will be driven by asset tokenization, the process of transforming real-world assets into digital assets that can be stored, accessed and traded via Blockchain.
Citigroup estimates that asset tokenization could become a $5 trillion market opportunity by 2030. The firm says that as Wall Street supports this trend, the popularity of asset tokenization will explode in areas from real estate to private equity and venture capital. The key question here is which altcoin projects can take full advantage of this momentum?
Bitcoin and Ethereum unlikely to be big players
Although Bitcoin (BTC) is the single cryptocurrency most frequently associated with Wall Street and the financial markets, it will likely play little or no role in asset tokenization. The most obvious reason for this is that Bitcoin was not designed to support smart contracts. These smart contracts are small pieces of executable computer code, which is why some people call cryptocurrencies with these capabilities “programmable money”.
To tokenize an asset and put it on a Blockchain, you need smart contracts. These contracts can be written to define property rights, as well as rules for how assets will be transferred between different owners. Given this complexity, you probably won’t be able to include all the terms of a financial instrument in a block on the Bitcoin Blockchain, which is optimized to hold only essential transaction data. Therefore, the real beneficiaries of any asset tokenization trend will be blockchains that support smart contracts.
This brings us to Ethereum, which is credited with launching the smart contract concept in 2015. Indeed, a number of Wall Street giants have experimented with the Ethereum network for pilot projects. In November 2022, JPMorgan Chase made headlines with trading tokenized cash deposits using Polygon, a Layer 2 scaling solution for Ethereum.
But Ethereum is too slow and expensive to use for the scale and scope of asset tokenization Citigroup has in mind. Even after Merge, Ethereum can only process 15 to 30 transactions per second, and transaction fees are too high to be practical for asset tokenization. What Wall Street needs and wants is a super-fast, near-zero Blockchain that can provide instant settlement of transactions.
These altcoin networks could be the main beneficiaries
It is thought that Solana or Avalanche could emerge as beneficiaries of the asset tokenization trend. Both are highly efficient, extremely fast blockchains with near zero fees. Furthermore, both have extensive experience in DeFi, including the creation of decentralized exchanges capable of trading tokenized assets.
Citigroup specifically mentions real estate and private equity as two of the most promising areas for asset tokenization. These are two areas where Solana and Avalanche have real world use cases. For example, in 2022, Avalanche helped tokenize a $4 billion healthcare fund from private equity giant KKR. Tokenized stocks have existed on Solana since 2021.
cryptocoin.com As we reported, Solana announced that one of the projects in its ecosystem has successfully tokenized a detached house in Texas.
How big is this market opportunity?
If asset tokenization is to begin, there are a number of issues that need to be addressed first. As Citigroup points out in its report, there are legal and regulatory issues to consider. There is also the issue of interoperability. If every Wall Street bank uses its own proprietary Blockchain infrastructure, it can get messy really fast. This is why experts think it makes the most sense to use a “public” blockchain like Solana or Avalanche.
It’s impossible not to hear about a potential $5 trillion market opportunity and not be impressed. There are even those who think the market opportunity could be much greater. For example, Boston Consulting Group has suggested that the size of the asset tokenization market could reach $16 trillion by 2030.
Currently, the total crypto market size is $1.2 trillion, so Citigroup’s “killer use case” could lead to a massive increase in the valuation of any crypto that gets ahead of the asset tokenization trend. As the rest of the crypto world focuses on NFTs and the metaverse, it is necessary to watch more closely which cryptos’ value could skyrocket as a result of asset tokenization. Analysts’ current picks for this space focus on Solana and Avalanche.
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