Tokenization Revolutionizes Asset Management in 2023

Tokenization and real-world assets (RWA) has significantly evolved in 2023, capturing the attention of both retail and institutional investors. This shift is largely due to the unique combination of professional asset management and the innovative mechanics of digital assets. Several key trends have emerged in this sector in the third quarter of 2023.

The most notable efficiency gains in this space are being realized through comprehensive digital systems, particularly those with an on-chain lifecycle. This approach not only saves money but also significantly reduces manual labor compared to traditional methods. Some noteworthy examples include:

1. Goldman Sachs Digital Asset Platform (GS DAP): Achieved a saving of 15 basis points on a €100M digital bond issuance, translating to an additional €150K return for Union Investment.
2. J.P. Morgan’s Onyx Digital Assets (ODA): Anticipates $20 million in savings from an expected $1 trillion in tokenized repo volume by the end of 2023.
3. Broadridge’s Distributed Ledger Repo (DLR): Offers sell-side clients like Societe Generale savings of $1 million per 100,000 repo transactions.
4. Equilend’s 1Source: A distributed ledger-based securities lending solution projected to save the industry around $100 million.
5. Intain’s Structured Finance Servicing: Reports 100 basis points in savings on SME loan lifecycle fees using Hyperledger and Avalanche blockchain solutions.
6. Vanguard and R3’s Corda: Through Grow Inc., Vanguard is achieving significant labor savings with straight-through processing.
7. Liquid Mortgage: Has drastically reduced Mortgage-Backed Securities (MBS) reporting time on the Stellar blockchain.

Asset managers and issuers are increasingly adopting tokenization, starting with money market and treasury products that generate on-chain yields. For instance, Hamilton Lane’s digitally-native private equity share classes are exploring alternative product strategies, while money markets are yielding approximately 5% annually in low-risk segments. This asset class has seen a nearly 520% YTD increase in on-chain capital, reaching almost $700 million by the end of Q3 2023.

A current challenge in the tokenization industry is the distribution of products and capital syndication. However, institutions are now moving beyond mere operational uses of tokenization (like repo and collateral management) and are beginning to distribute tokenized products to their client bases.

Citi, for example, is offering digital corporate bonds through Singapore’s BondbloX to its Southeast Asia private banking and wealth management clients. UBS has expanded its digital bond offerings to include an Ethereum-based money market fund, following its successful $400+ million digital bond issue.

As industry giants like JP Morgan and Goldman Sachs continue to enhance their digital offerings, expect their private banking, wealth & asset management, and alternatives teams to become key distribution channels. This shift will unlock substantial capital, reaching beyond the capabilities of retail broker-dealers.

The tokenization of assets and real-world assets is not just a fleeting trend but a transformative force in asset management. As we progress through 2023, this sector is poised to redefine investment strategies, offering unprecedented efficiency, accessibility, and profitability.