Tokenization has the potential to revolutionize financial and non-financial infrastructure and financial markets in the next five to 15 years, according to a recent research report by Bank of America (BofA). The report highlights the wide-ranging implications of tokenization, which involves converting real-world assets or rights into digital tokens on a blockchain network.
By representing ownership, value, or other rights, these tokens enable secure and transparent asset tracking and transfer. BofA’s Cryptocurrencies Research Team believes that this technology will redefine value transfer, settlement, and storage across all industries, leading to a transformative infrastructure revolution.
The report, released on June 29, emphasizes that tokenization could reshape asset management and trading in the coming decade. It has the potential to enhance efficiency, increase liquidity, and reduce transaction costs across various markets. The analysts at Bank of America wrote, “The tokenization of traditional assets and issuance of assets in tokenized form have the potential to increase efficiencies and reduce costs across an asset’s life cycle, improve the efficient allocation of capital, optimize global supply chains, catalyze a new generation of software-as-a-service (SaaS) companies, and ultimately drive mainstream adoption.”
In financial infrastructure, tokenization can streamline settlement, clearance, and custodial services. By digitizing assets and representing them as tokens, the complexities associated with intermediaries and paperwork can be minimized, resulting in faster and more efficient transactions.
Bank of America highlights that disruptive technologies like radio, television, and email historically took around thirty years to achieve widespread adoption. However, the bank anticipates a significantly shorter timeframe for the mainstream adoption of digital assets. It expects blockchain technology to gain rapid momentum among financial institutions and corporations due to the untapped efficiencies it offers.
The report clarifies that blockchain technology and tokenized traditional assets are not synonymous with cryptocurrencies. While blockchains record the ownership of the numerous tokens within the digital asset ecosystem, the report expects most of the existing tokens to disappear over the next decade. The focus is on the applications of tokenization in the digital realm.
The report acknowledges that specific tokens may lack inherent value but still attract attention by representing a community’s value. It cites examples such as memecoins like Shiba Inu (SHIB) and Pepecoin (PEPE), which gained significant attention despite their lack of utility or intrinsic worth. However, the report also recognizes that there are other tokens that serve distinct purposes.
Certain digital assets, even without intrinsic value, become essential due to the emergence of public permissionless blockchains like Bitcoin, Ethereum, and some third-generation blockchains. These decentralized networks require tokens as incentives for participants involved in processing transactions within the network.
Tokenization has the potential to revolutionize financial and non-financial infrastructure. As assets are converted into digital tokens, the benefits include enhanced efficiency, increased liquidity, and reduced transaction costs. The adoption of blockchain technology is expected to accelerate rapidly as financial institutions and corporations recognize the untapped efficiencies it offers. While some tokens may lack inherent value, they can still attract attention and serve distinct purposes within the digital asset ecosystem. With the emergence of public permissionless blockchains, tokens become essential for incentivizing participants in processing transactions.