Real World Assets could help stabilize crypto volatility impacts on performance while streamlining portfolio management.
The creation of a digital representation of assets via blockchain-based tokens is growing. In today’s issue, Herwig Konings from Security Token Market examines the growth of this industry and why tokenization matters.
In Ask an Expert, Carlos Domingo, CEO of Securitize, answers questions about why investors are looking at these assets in the current market.
Why Over $40 Billion in Tokenized Securities Should Be Considered for Investment Portfolios
Tokenized assets such as equities, bonds, funds, real estate, and asset-backed securities have attracted more attention this year than ever before. Known in the crypto world as “real world assets,” these RWAs are being explored by financial giants such as BlackRock, Hamilton Lane, JP Morgan, DTCC and Broadridge as their operational efficiencies and different return profiles continue to emerge.
What does it mean to be tokenized? Leveraging blockchain technology, these RWA tokens are digital representations of financial instruments like those stated above. Unlike crypto, these digital assets follow applicable securities laws worldwide. They run on regulated platforms while tapping decentralized finance (DeFi) applications for enhanced performance and utility.
Examples of tokenized assets Security Token Market has seen come to market include pre-IPO company equity, resorts, wine and diamond funds and unique securities backed by bitcoin mining or liquidity events from a portfolio of companies. On the more traditional side, we’ve seen feeder funds such as Hamilton Lane’s Secondary Fund VI available on Securitize or liquidity products such as the BlackRock USD Institutional Liquidity Fund (BUIDL) and Franklin Templeton’s OnChain U.S. Government Money Fund (FOBXX). Why liquidity products? Check out our piece for CoinDesk Crypto Long & Short.
Why bring traditional, large funds on-chain? Financial advisors may seek higher-performing assets to enhance client portfolios. However, such funds tend to have high investment minimums, for example, $5 million. What if your clients could participate at a fraction of that, say $20,000? More clients get to take advantage of attractive risk-adjusted returns, advisors can rebalance a bit more granularly, and issuers can manage their investors more easily, thanks to the power of blockchain. This holds true of many assets, allowing for portfolio customization especially in an era where the transfer of wealth exposes different asset allocation preferences and risk profiles. This includes younger generations eager to participate in crypto markets.
How do RWAs perform compared to crypto? Do they also see outrageous returns? The short answer is no, but they can help stabilize portfolios revolving around digital assets, unlock access to previously challenging asset classes to tap into, and bring utility to them, resulting in an evolving financial ecosystem.
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Taking from STM’s RWA Securities Market Update – August 2024 report, a hypothetical security token bundle of all STM-tracked RWAs outperformed the CoinDesk 20 Index (CD20), closing August out up 3.03% versus the CD20’s 14.45% loss this month. How does this compare to past performance? The security token basket has remained mainly in the lower single-digit positive returns, whereas the CD20 has seen some months with similar performance and others with double-digit losses. This speaks to crypto’s volatile nature.
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As noted in the previous edition of STM’s report, traditional markets saw a negative start to August 2024 amid the Nikkei’s crash, unemployment numbers, and fears of a US recession, among other catalysts. Crypto subsequently experienced that loss, working to recover throughout the month but ultimately coming back down. While some security tokens have also experienced losses, others saw significant growth ultimately helping the basket keep its positive performance.
Link: https://www.coindesk.com/business/2024/09/12/crypto-for-advisors-tokenization-of-real-world-assets/?utm_source=pocket_saves
Source: https://www.coindesk.com
