Tokenization: Real World Assets, Real World Benefits
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As blockchain technology continues to disrupt the traditional financial market, tokenization presents itself as the biggest opportunity to replace the archaic systems we have today. At its most basic level, tokenization is the process of bringing real world assets Tokenization (RWA) , both tangible and intangible, onto the chain. However, the impact that tokenization has on the Financial Markets goes far beyond just “things on chain.”
When assessing the impact, the Stellar network is ONE of the first examples of the true impact of tokenized RWAs and their potential for the future. Stellar has already been collaborating with industry-leading financial institutions for several years to bring RWA to the chain and recently launched Protocol 20 to bring Soroban's smart contract functionality to the network.In turn, Stellar has become the platform of choice for major financial institutions such as WisdomTree, Franklin Templeton, and Circle, whose Stellar digital assets have been approved by regulatory agencies such as the SEC and NYDFS. Stellar has also gained popularity outside the United States, and other key players have adopted the Technology, including ABN Amro and the Bank for International Settlements (BIS) Innovation Center.
Positioned as one of the early leaders in tokenization, the Stellar network was not enhanced to support tokenization, but was prepared for this use case from its inception. As other networks look to catch up with tokenizations, Stellar's native network features have continued to drive adoption by global financial institutions and support strong conviction in the potential of on-chain RWAs.In this article, we will look at why tokenized RWAs present such an opportunity to disrupt traditional Finance and why major institutions are upgrading their processes with Stellar.
Tokenized opportunity
ONE of the key differentiators between tokenization and other blockchain innovations is that tokenization provides a bilateral benefit to both the people who interact with the tokenized RWAs and the institutions that tokenize them.
During a recent fireside chat , Denelle Dixon, CEO of the Stellar Development Foundation, stated that ONE of the biggest impacts of tokenization for people is its ability to create financial access: “Financial access is the tool we're looking at now. Not only does it save value for the entities that are tokenizing, but [RWAs] provide opportunities for those who have not had the opportunity to take advantage of them.”
Products like WisdomTree Prime are creating a unified saving, spending and investing experience for people to generate a return that would otherwise be inaccessible through traditional means like a checking account. Stablecoins like USDC also provide powerful financial access around the world by giving anyone the opportunity to gain exposure to USD, regardless of where they are located.
For institutions, tokenization is an opportunity to drive cost savings and maximize efficiency. In terms of savings, asset issuers can achieve operational efficiencies and reduce backend costs by eliminating manual processes and intermediaries. For a product like a money market, tokenization can increase liquidity while reducing intermediary fees for third-party compliance reporting, monitoring, management, and brokerage.
Tokenization also offers a huge boost to efficiency. Today's financial system is often burdened by the transfer of physical documents and long settlement periods, often as a result of bureaucracy. With tokenization, settlement is immediate and final, virtually eliminating the information gap between transaction and settlement. The impact can be significant, such as with Liquid Mortgage , where tokenization reduced mortgage-backed securities (MBS) reporting from 55 days to 30 minutes.
Stellar Benefits
From issuance of stablecoins to tokenized treasuries , Stellar is a leader in real-world tokenized assets. According to data from RWA.xyz , Stellar-based RWAs account for approximately 40% of the tokenized treasury market, making it the second largest blockchain on TVL.
For many global financial institutions today, the Stellar blockchain is the ideal platform for asset tokenization . Because? For Franklin Templeton , it was the network's low-cost, integrated asset controls and compliance features, and a simple, streamlined developer experience. While important decisions like this are usually made through partnerships, Franklin Templeton's decision simply came down to the benefits of the network and its accessibility as an open source project.
During a panel discussion at the World Economic Forum, Dixon said he first learned of Franklin Templeton's use of Stellar when he saw its SEC filing in 2019, which indicated it had begun work on its money market. “It's been really wonderful to work with them to understand why they did it and also the value it brings to their new customers on the Benji app,” Dixon continued.
As Franklin Templeton worked to bring his market-based mutual fund online and showcase the potential for integrating traditional finance with blockchain technology, other financial institutions began conducting their own experiments. With Stellar, asset issuers benefit from powerful built-in features, allowing companies to quickly tokenize real-world assets with limited expertise needed, low development costs, and strong asset issuer controls.
Support for asset issuers is not limited to just the network level. To facilitate easy and low-cost tokenization of assets, Stellar has worked with Fire Blocks, Bitgo, Copper and other asset issuance service providers to support a variety of services such as custody and analytics. Blockchain development ecosystem also hosts a variety of platforms, wallets, and on- and off-ramps to support the newly minted assets. This expansive ecosystem allows asset issuers to grow their potential markets by making assets available through the numerous companies that rely on Stellar.Conclusion
Asset tokenization on Stellar is easy to use and efficient, with the ability to issue any asset in just four steps, without the need for a smart contract. Now, with the launch of smart contracts on Stellar, the use of asset tokenization will continue to expand further into everyday financial products such as loans, borrowing, savings, and automatic return calculations.
Learn more about tokenization on Stellar and try out its sandbox environment to explore the tokenization process on the Stellar Testnet without the need for code.
RWA tokenization will undoubtedly be one of the biggest innovations the modern financial industry has ever experienced. As both individuals and institutions begin to discover the opportunities that tokenization presents, Stellar continues to break down barriers to entry and support the next generation of Finance.