Tokenisation: all the assets you can invest in
It is now possible to represent shares, bonds, property, works of art, vintage wines and even diamonds in digital form. Introduced with cryptocurrencies, this new process, known as "tokenisation", could change investors' lives. What solutions are already available? And how do you get started? We explain everything.
👉 When digital tokens transform investing
In the financial landscape, there are many assets. The most popular are equities and bonds. Now, these assets can be divided into multiple digital fractions, called tokens or "tokens".
It soon became apparent that tokenisation could go far beyond financial assets alone. As the US bank Citi explained in a recent report, "Almost anything of value can be represented as a token". This can apply just as much to real estate as to precious stones or paintings.
All this is made possible by the meeting of the blockchain - a digital ledger - and the smart contract - a computer program that runs automatically on the blockchain -, two interdependent technological inventions.
👉 What's the point of tokenising an asset?
The main point of tokenisation is to facilitate and broaden investment opportunities for small investors, i.e. you and me. Thanks to tokenisation, we are able to access assets that were once reserved for institutional investors, such as banks or large corporations.
While it used to take tens or even hundreds of thousands of euros to buy a corporate bond (a debt security that entitles the holder to interest payments at regular intervals), a painting, a precious stone or a flat, it is now possible to buy them for a few tens or hundreds of euros 💶. At least on paper, because the regulations are not yet complete. Today, you can mainly tokenise the income from an asset, but not yet the asset itself!
Tokenisation is very well suited to illiquid markets: those where it is difficult to get the funds needed to buy and sell quickly. This is why experimentation with tokenised assets has, for example, very quickly turned to real estate.
👉 Where can I get tokenised assets?
Tokenised assets can be purchased in two different ways: either via a centralised exchange platform owned by a company or start-up, or from a decentralised finance protocol (Uniswap, for example).
If we limit ourselves to centralised exchange platforms, these may specialise in selling a single type of tokenised asset from the real world (we talk about RWA - Real World Asset - in DeFi) or from the financial world 🏦. They can also offer several kinds.
In the second group, there are platforms that offer a selection of tokenised assets. As an example, Bitpanda provides tokenised ETFs and tokenised precious metals on palladium or platinum. In addition to real estate, Tangible offers other tokenised assets such as gold, high-end wine and watches.
Focusing on financial securities, Obligate allows you to buy tokenised corporate bonds. This is a very buoyant market, since bond issues are often large and highly illiquid.
Individual investors access this type of investment indirectly through a life insurance policy or a SICAV (open-ended investment company). Bond tokenisation also simplifies life for issuers, who no longer have to use banks to syndicate their securities.
For its part, MatrixDock focuses on tokenised Treasury bills. Another interesting avenue for tokenisation is tokenised private equity. This is the niche of Aktionariat. In the same vein, there is of course Kriptown in France, which enables the capital of small and medium-sized - unlisted - companies to be tokenised.
Many major banks are also starting to work on asset tokenisation platforms: Société Générale (SG Forge), JP Morgan, Deutsche Bank and Goldman Sachs, for example. Today, their solutions are reserved for institutional investors (companies), but they could gradually open them up to individuals.
👉 How to buy tokenised assets?
Buying tokenised assets is no more complicated than opening a securities account or a traditional share savings plan (PEA). It's even simpler. In order to invest from centralised exchange platforms, users generally have to undergo a thorough KYC (Know Your Customer) and AML (Anti-Money Laundering) review and provide the required documentation (ID, etc.)
Once their account has been verified and approved, users are ready to invest. To start buying tokenised assets, they must first provide their bank details and fund their account. Some platforms accept payments in both fiat currency (euro, dollar, etc.) and cryptocurrencies. This is the case with Brickken, for example.
On certain platforms or to access decentralised finance (DeFi), you will first need to create a digital wallet (wallet) that stores the tokens purchased. This can be done with Metamask or Trust Wallet. In France, start-up Ledger specialises in cold storage, storing your cryptocurrencies via a physical wallet, the famous Ledger Nano.
As a result, accessing tokens from the DeFi (we talk about "disintermediated finance" on the regulator side) requires some technical knowledge. In short, it is simpler for an unsophisticated public to access these investments from exchange platforms.
👉 Obstacles to overcome, huge potential
While tokenisation really began to emerge with the launch of Ethereum in 2015, tokenised assets are still little known to the general public and, as a result, little used. There are at least four reasons for their sluggish progress:
- Tokenisation is transforming the financial architecture: financial institutions must ensure the transition from the old model to the new, so-called "on-chain" model, based on blockchain and smart contracts. This cannot be done overnight. Upgrading can only be done gradually.
- Regulatory uncertainty: The world of investment involves risks, and you need to have confidence in the platforms you use. However, in the absence of clear rules of the game, individual investors can legitimately say to themselves: "I'm not going to do it, it's too dangerous". There is no need to recall the two recent debacles originating from a stablecoin issuer (the Terra ecosystem) and a centralised platform (FTX) that have greatly affected the sector.
- Interoperability: tokenised asset platforms need to be able to communicate with each other to allow the unrestricted purchase, exchange and resale of tokens.
- The need for ergonomic and easy-to-use applications is a phenomenon already seen in the recent history of technology. One of the best examples is Napster. In 1999, the company offered the first online music shop. It was too rudimentary to appeal to the general public. The market did not really take off until two years later with the release of iTunes and then the iPod, the portable digital music player that was to relaunch Apple.
Despite these very real obstacles, 2024 could well be the tipping point in the democratisation of tokenised assets, with the arrival of new platforms on the market that are much more user-friendly than in the past. Better still: the outlook is very promising.
According to a report by the Boston Consulting Group, one of the world's leading strategy consultancies, the tokenisation of illiquid assets, such as real estate, art, commodities or public infrastructure, could be worth a staggering $16 trillion in 2030 globally, up from $2.75 trillion in 2023, according to data from Galaxy Research. Yes, you read that right! 😅
Other estimates are more conservative but still impressive. In a more recent report than BCG's published in March, US bank Citi predicts that $4 trillion of tokenised digital securities and $5 trillion of central bank digital currency (CBDC) assets could circulate in the world's major economies by the end of the decade.
Although we should always be cautious with predictions of this kind, tomorrow's investment world could be very different from the one we know today. Asset managers and financial services providers are well aware of this 🧠.