The trend of tokenization is gaining momentum.
A Dune dashboard shows that niche now boasts a market capitalization of more than $220 million across the six projects measured.
Tokenization refers to the issuance of financial securities, such as stocks and bonds, on the blockchain.
Companies such as Matrixport, Backed Finance, Ondo, and Franklin Templeton have all created ERC-20 tokens, which represent government bonds or exchange-traded funds (ETFs) stock.
Last month, for example, Franklin Templeton tapped Polygon to host a tokenized version of the Nasdaq-listed OnChain US Government Money Fund (FOBXX). Elsewhere, Financially Backed Cebu launched a tokenized version of Coinbase’s Ethereum stock.
On the same Dune dashboard, a collection of niche companies have issued tokenized securities on Ethereum, Polygon, and Gnosis Chain. Most of the activity, however, is happening on Ethereum.
Ondo and MatrixDock dominate the market with 61.4% and 32.1% shares, which are mostly short-term US government bonds, which are currently yielding 4% to 5% due to the increase in benchmark Federal interest rates. Reserve.
Both Ondo and MatrixDock provide tokenized securities of US government bonds that provide a suite of digital asset management tools, trading services, and financial products.
Ondo also offers a lending service called Flux, which allows users to place their ERC-20 securities tokens as collateral. So far, users have added bonds worth $41.2 million as collateral.
Backed Finance’s tokenized fixed-income bonds are also accepted as collateral in DeFi protocols such as ANGLE and Ribbon Finance.
Apart from issuing US Treasury Bills, the Swiss-based firm has also partnered with the world’s largest asset fund manager BlackRock to sell and own the ERC-20 version of BlockRock’s ETFs in over 400 companies. of the S&P 500 index.
Backed Finance head of marketing Kit Popplestone said Decrypt that the “interoperability between tokenized assets and DeFi platforms opens up significant opportunities for new products and makes lending more efficient.”
The trend of tokenization is on the rise
BlackRock CEO Larry Fink believes that the tokenization of securities will be “the next generation for markets.”
Fink noted at an event in New York last year that tokenized securities provide advantages such as quick settlement, reduced fees, and simple integration with BlackRock’s business model.
Citi Bank analysts shared similar opinions in a March 2023 report, announcing that central bank digital currencies—called CBDCs—and tokenization will drive adoption.
While blockchain technology shows the promise of innovation with tokenized securities, regulatory clarity has hindered growth and adoption.
“To continue this rapid development, we need regulatory clarity and consistency, and just as importantly, tokens must be interoperable and composable with DeFi,” Popplestone said.
However, he added that as global interest in central bank digital currencies and on-chain assets increases, the demand for tokenized securities “will only increase.”