Amid high-profile fraud news and price crashes, it is easy for investors to forget the core utopian ideal of the cryptocurrency movement: to build financial services on decentralized infrastructure, thereby bypassing banks and other fee-charging intermediaries. However, despite years of hype, cryptocurrencies and the blockchain ledgers they rely on have not achieved widespread adoption. Tokenization, the process of recording real-world assets on a blockchain, could change this situation—but banks and their clients are the most likely beneficiaries.
The rationale for registering asset ownership on cryptocurrency platforms fundamentally revolves around speed and convenience. Because public blockchains operate around the clock, there are no fixed trading hours, and settlement can be almost instantaneous. Proponents also argue that trading costly, illiquid assets, such as real estate, would be easier if they were divided into smaller units. Tokenization makes it theoretically possible to own, for example, a small fraction of a commercial building.
Currently, the outlook for this sector is optimistic. Analysts at Standard Chartered predict that the market capitalization of all tokenized real-world assets (RWA) will reach $2 trillion by 2028. This figure does not include stablecoins, which are cryptocurrencies pegged to the price of existing currencies. Vlad Tenev, CEO of brokerage app Robinhood Markets (HOOD.US), stated in an October interview that tokenization is like a "freight train that will devour the entire financial system."
Nevertheless, banks hold a strategic advantage, positioning them to capture the bulk of the cost savings from this new system first. For instance, banks can tokenize corporate clients' deposits, enabling them to transfer funds between their various global accounts in seconds. Both Citigroup (C.US) and HSBC (HSBC.US) currently offer similar services to some institutional clients.
Meanwhile, e-commerce giant Alibaba (BABA.US) announced plans to launch a tokenized global payment network using technology developed by JPMorgan Chase. Zhang Kuo, President of Alibaba.com, said in an interview that the group will introduce a system similar to stablecoins to speed up transactions between international businesses.
Skeptics might argue that lenders are developing these products merely to counter the competitive threat posed by stablecoins. If customers use cryptocurrencies like cash, funds would flow out of the banking system. This would exacerbate the difficulties for lenders, whose income is already under pressure as major market interest rates decline.
By tokenizing payments and deposits, customers can still enjoy instant settlement while retaining the security provided by banks. Furthermore, individuals trading tokenized stocks on platforms like Robinhood do not necessarily enjoy the same rights as traditional shareholders. For this reason, despite tokenized stocks being legal in Europe, regulators remain cautious.
Although former U.S. President Donald Trump is well-known for his enthusiasm for cryptocurrencies, tokenized stocks are not widespread in the United States. Without clearer support from regulators, demand is likely to stagnate.
For now, the dream of decentralized finance is gradually being replaced by a more pragmatic reality: cryptocurrency payment systems will help banks eliminate many frictions in the existing infrastructure. Far from being excluded from the cryptocurrency feast, traditional lenders are instead poised to become key participants.
