The conversation around tokenizing real-world assets (RWAs) is heating up in the cryptocurrency space. According to NYDIG’s Greg Cipolaro, while the initial benefits of tokenization may seem limited, the potential for expansion exists—provided that regulations evolve to support this transformation.

Cipolaro, the global head of research at NYDIG, points out that tokenization isn’t an instant game-changer for the crypto market. However, he believes that as tokenized assets gain better integration with decentralized finance (DeFi), the advantages will become more pronounced.

Currently, the main advantage of tokenization lies in the transaction fees associated with using these assets. The networks hosting tokenized assets, such as Ethereum, will experience increasing network effects as more users engage with them. As Cipolaro explains, “The benefits to networks these assets reside on… are light at first, but will increase as their access and interoperability improve.”

The topic has gained traction among major exchanges like Coinbase and Kraken, which are eager to launch platforms for tokenized stocks in the U.S. after witnessing success in other countries. This shift could mark a significant milestone in the adoption of tokenized assets in the financial system.

Adding to the optimism, Securities and Exchange Commission chair Paul Atkins recently indicated that the U.S. financial system could embrace tokenization within a few years. Cipolaro interprets this as a clear signal that tokenization is likely to become a mainstream trend.

Looking ahead, Cipolaro envisions a future where RWAs could play a vital role in DeFi. They could be used as collateral for loans, assets for lending, or even for trading purposes. However, he cautions that achieving this vision will take time. It requires advancements in technology, the development of infrastructure, and a favorable regulatory environment.

The process of making tokenized assets both composable and interoperable is complex. Cipolaro notes that these assets can differ significantly in form and function, often residing on both public and private networks. For instance, the Canton Network, a private blockchain developed by Digital Asset Holdings, currently holds the title of the largest blockchain for tokenized assets, boasting a staggering $380 billion in represented value.

In contrast, Ethereum remains the go-to public blockchain for tokenized assets, with around $12.1 billion worth of RWAs deployed on its network. However, even on a platform like Ethereum, the design of tokenized assets can vary widely. Many of these RWAs are classified as securities and require traditional financial structures like KYC processes, whitelisted wallets, and transfer agents.

Despite these challenges, Cipolaro emphasizes that companies are leveraging blockchain technology for its numerous benefits. Features such as near-instant settlement, round-the-clock operations, programmatic ownership, transparency, auditability, and enhanced collateral efficiency make blockchain an attractive option for traditional finance.

Cipolaro remains optimistic about the future of tokenization. If regulations become more favorable, as Chairman Atkins suggests, access to these RWAs could become more democratized. This democratization would expand their reach, allowing a broader range of investors to engage with tokenized assets.

“Investors should pay attention,” Cipolaro advises, despite the current economic impacts on traditional cryptocurrencies being minimal. The implications of tokenization could reshape the financial landscape, making it essential for industry participants to stay informed.

In conclusion, while the immediate benefits of tokenization may seem modest, the potential for growth and integration into DeFi could be significant. As regulations evolve and technology advances, tokenized assets could usher in a new era for investing and finance, one that is more inclusive and accessible to all.