Experts Warn of Risks in Excessive Tokenisation

Tokenisation has become the latest trend in the crypto industry and TradFi. However, not all assets benefit from being moved to the blockchain, experts believe.

According to RWA.xyz, the current capitalisation of the segment, excluding stablecoins, is $14.8 billion. Only 0.003% of the total value of global assets has been tokenised.

Among the 67,530 holders of RWA tokens, the majority are institutional investors. Many companies issuing such assets are on the brink of bankruptcy.

One barrier for tokenised assets has been an unfavourable legal regime, particularly in the United States. Regulators have applied the same rules to RWA assets as to cryptocurrencies and advised banks to avoid companies associated with them. Many market participants have opted to avoid risks and invest in other sectors.

According to RWA.xyz co-founder Charlie Yu, these conditions are changing:

“Now [large investors] feel they can do something and have significantly increased their pace, whereas before they were just observing.”

With the advent of new leadership in the United States, market participants expect the implementation of crypto-friendly legislation. Throughout 2024, several major traditional players, including Visa and Mastercard, have launched their own RWA projects.

“This is an obvious trend that will develop and open up many new business models. This trend will remain,” stated Raj Dhamodharan, Executive Vice President for Blockchain and Digital Assets at Mastercard.

However, excessive hype may lead to the tokenisation of assets that do not require it, according to Ondo Finance CEO Nathan Allman. Instead of greater liquidity and transaction efficiency, investors face the risk of hacking and additional fees.

“You end up selling a lot of poorly valued assets to not very sophisticated investors. […] Except for treasury bonds, I think tokenised public securities have virtually no value,” Allman emphasised.

Noelle Acheson, author of the newsletter Crypto is Macro Now, believes that the tokenisation of private equity is “a solution in search of a problem,” as companies still offer such assets to a limited circle and do not want them sold to others.

According to Ervinas Janavicius, Managing Director of consulting firm Capco, electronic payment systems from a decade ago need an update. Blockchain can make them more efficient, but it will take time.

“There are many opportunities, we do not dispute that, but there is still much work to be done,” Janavicius concluded.

Back in November, Bitfinex Securities COO Jesse Knutson outlined the conditions for the growth of the RWA market.