Illiquid Asset Tokenization on the Rise

The amount of money tied up in illiquid assets is climbing, and it could total $16.1 trillion by 2030, according to Boston Consulting Group (BCG).

“A large chunk of the world’s wealth is locked in illiquid assets,” BCG Managing Director Sumit Kumar and digital exchange ADDX Co-founder Darius Liu wrote in a September report.

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These illiquid assets include real estate, pre-initial public offering stocks, private debt, revenues from small and medium-sized businesses, physical art, private funds, and wholesale bonds. Reasons for their lack of liquidity are due to a range of factors causing the users to have difficulty acquiring or trading an asset. Regulatory hurdles, limited affordability for mass investors, or lack of wealth manager expertise may be to blame. Or, when assets are restricted to elite cliques, such as vintage cars or exotic beverages, illiquidity may result.

A solution, according to the report, may be on-chain asset tokenization, a process in which an issuer creates digital tokens on a distributed ledger or blockchain, which represent the physical assets. Global digital asset daily trading volume has increased in the last two years from 30 billion to 150 billion euros, according to the report.

The projected $16.1 trillion would be comprised of financial assets including insurance policies and pensions, for instance, and other easily tokenized assets such as home equity, infrastructure projects, car fleets, and patents, the report says.

Regulatory frameworks and asset class sizes would affect the potential of tokenized assets from country to country. Singapore’s Monetary Authority recently launched Project Guardian, a blockchain-based tokenization pilot that will explore decentralized finance applications in wholesale funding markets.
At the moment, token issuance is regulated in Hong Kong, Japan, the European Union, the United Kingdom, the U.S., the United Arab Emirates, Germany, Austria, and Switzerland.