Tokenized Securities: The Future of Financial Markets

Introduction

The emergence of blockchain technology and its application in financial markets has created new opportunities for investors and disrupted traditional ways of investing. Tokenization, which leverages smart contracts, allows for the exchange of value without the need for a trusted central authority and has the potential to revolutionize the way investments are made, managed, and governed.

In this article, we will explore the concept of tokenization and its impact on financial markets.

Tokenization and its Potential in Financial Markets

When it comes to financial assets, the tokenization of securities (equity, bonds, and/or debt) is seen by the market as the sector with the most imminent potential for growth, which is estimated to be worth around $2.6 trillion by 2025. This inevitably means that the tokenization of securities can facilitate new investing models by managing both financial investment and facilitating voting and ownership rights. Moreover, it can incorporate a stakeholder capitalism model, promoting benefits provided to the broader community and not just shareholders.

Tokenization of Securities: Market Size and Growth Projections

Here are some key figures and projections on the tokenized securities market:

1. Tokenization in Banking and Finance Sector: According to the research stated that the global tokenization market size for the banking and financial sector, including bonds, was valued at USD 1.8 billion in 2020 and is projected to reach USD 4.8 billion by 2025, with a CAGR of 21.1% during the forecast period of 2020–2025.
2. Global Tokenization Market Size: According to a recent report, the global tokenization market size is expected to reach $4.5 billion by 2026, with the financial services sector being one of the main drivers of growth.
3. Projected Value of Tokenized Assets: Another research estimates that the total value of tokenized assets on the blockchain will reach $24 trillion by 2027, driven by the growth of tokenized securities and other financial assets.
4. Tokenized Securities Market Size: The CEO of Securitize, a digital asset platform focused on tokenization, has predicted that the market for security tokenization could reach $5–10 trillion within the next five years.
5. Impact of Tokenization on Equity Trading: Another study, which focuses on tokenization’s impact on equity trading, shows that as adoption increases, tokenization of equity post-trading could lead to gains of EUR 4.6 billion by 2030.

As these figures suggest, the tokenization market is rapidly expanding, and its impact on various industries, particularly finance, is expected to be significant in the coming years.

From Exclusive to Inclusive: Tokenization is Changing the Face of Finance

Tokenized securities, such as equity and bonds, have the power to enhance inclusivity and liquidity across traditional capital markets, bringing about improved practices that should improve transparency, increase market participation, and eliminate settlement risks. Moreover, security tokenization can improve accessibility by maintaining an accurate ledger of fractional ownership, opening up the market to potentially millions of retail investors.

The traditional financial markets have faced several limitations and the recent fluctuations in the market led to the shift toward tokenizing financial securities. Here are some of the key factors that have contributed to the shift toward the token economy.

1. Increased accessibility: Tokenization can potentially democratize access to financial assets by making it easier for investors to buy and sell fractional shares of securities. This could open up new investment opportunities for individuals who may not have the means to purchase whole shares or who may not have access to traditional securities markets.
2. Improved liquidity: Tokenization can potentially make it easier to trade and transfer securities, increasing liquidity and enabling investors to access a wider range of investment opportunities. This could be especially beneficial for smaller issuers and investors who may have limited access to traditional securities markets.
3. Increased efficiency: By digitizing and automating many aspects of the securities transaction process, tokenization can potentially increase efficiency and reduce costs for both issuers and investors. For example, smart contracts can automate certain aspects of the transaction process, such as settlement and regulatory compliance, reducing the need for intermediaries and manual processes.
4. Enhanced transparency: The use of blockchain technology in tokenization can increase transparency by creating an immutable ledger of all transactions and enabling real-time access to information. This can help investors make more informed investment decisions and reduce the risk of fraud or other malfeasance.
5. Innovation: Tokenization is a relatively new concept in the securities industry, and as such, there is significant potential for innovation and new business models. Moreover, tokenization can reduce the traditionally high transaction costs by eliminating the need for intermediaries and streamlining the trading process.

Tokenization is still a relatively new concept in the securities industry, but due to recent market uncertainties and a lack of trust, there has been a growing interest in adopting blockchain technology. Even the most skeptical investors and stakeholders are now more accepting of this technology for financial assets, paving the way for a better financial future. In summary, the use of tokenization in the financial sector is steadily gaining momentum, and the innovative potential of tokenization in the securities industry opens up exciting possibilities that can benefit investors and issuers alike.

Conclusion

Tokenization is actively developing, giving fundamentally new or significantly improved investment opportunities. The entire tokenization market as a whole expects great growth. According to the Markets and Markets report, it is expected to grow from USD 2.3 billion in 2021 to USD 5.6 billion by 2026 for various assets. Whereas the other research suggests that, private equity and venture capital funds will emerge as the leading asset class to undergo tokenization, accounting for 10% of its total potential market and real estate is expected to follow closely behind at 7.5%. That means, tokenization is not only here to stay but can have a major disruptive influence across the financial spectrum, resulting in irreversible change.

Aconomy is a real-world asset-backed DEX that aims to tokenize real-world assets with its cutting-edge technology. It benefits both investors and asset owners by empowering them to trade assets on a decentralized exchange, which provides increased accessibility and liquidity.

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