Fractionalization of Real-World Assets

Since the inception of blockchain technologies and their use as a store of value in the form of cryptocurrencies, it was not hard to imagine a world where illiquid assets such as real estate, art pieces and even investment wines can be tokenized.

If these real-world assets could be tokenized, it is not a stretch to devise ways to divide them up into more price-friendlier parts, or fractions in a move to democratize their ownership. This could be a game changer, especially considering the fact that these are asset classes that have traditionally been out of reach to broader audiences.

Data suggests that the tokenization of global illiquid assets has the potential to become a $16 trillion industry by 2030. Blockchains could bridge traditional finance markets with decentralized finance (DeFi) to gradually move us in the direction of this fractional ownership future.

Fractionalization momentum is in motion

Over the past two years, we saw a rise in volume of the conversion of well-known asset classes like real estate, precious metals and intellectual property into digital assets tradeable on the blockchain in the form of real-world asset (RWA) protocols.

Data from DefiLlama reports that the total value locked (TVL) in De-Fi protocols under the RWA category received a strong boost over the summer of 2023, going from $200 million in April to well over $800 million in August.

The U.S. dollar took the lead as the most tokenized asset in terms of market cap expressed in crypto, followed by gold.

Everybody can get a piece of the (fr)action

The new players blazing the fractionalization trail, such as Modular oracle. are helping DEX platforms offer derivatives trading of gold, silver, oil and other real-world assets, like tokenized Treasury bills, with tailor-made data feed models.

Fractionalization could also stir the status quo on the stock market, where individual shares in publicly listed companies can be out of reach for retail investors. Swarm, a regulated DeFi platform based in Germany, recently announced that it is partnering with Mattereum, which is a digital identity layer for real-world assets on the Ethereum network.

The goal is to facilitate the onboarding of high-value traditional assets to the blockchain. Swarm is already making progress in rolling out DeFi-compatible securities tokens on the Polygon network: tokenized versions of Tesla, Apple, Coinbase, Microsoft, Intel, and NVIDIA stocks.

What about regulation?

We’re only scratching the surface when it comes to what can be achieved on the blockchain in terms of tokenization and subsequent fractionalization of real-world assets.

Yet, there are still some hurdles to overcome, such as the lack of legal protection when high-value assets are sold. It is also crucial for the exchanges that will facilitate the fractionalization transactions to be duly regulated, and policies to be firmly in place for dispute resolution. After all, we are talking about high value, real-world assets here.