Will traditional investors care about tokenized traditional and physical assets?

The tokenization of traditional and physical assets, more commonly referred to as “real-world assets(RWA)” presents a market opportunity to attract and onboard trillions in liquidity on-chain.

However, one of the questions we don't often ask when speculating on the vast tokenization of these assets is if it would truly take off amongst traditional investors.

This is quite an important thing to consider given that generally, most crypto enthusiasts, essentially investors and traders, are uniquely different from traditional investors and traders in not just how they view risks and rewards, but generally how they perceive value and take action accordingly.

There are lots of projects coming through recently under the niche of tokenized real-world assets and while it's truly admirable, one has to ask if the interest of traditional investors can be gained.

Certainly there are a number crypto investors that will pick an interest in these innovations but the target liquidity is much beyond crypto native investors, so crypto-side demand is just a not very significant plus.

That said, one of the biggest flaws in tokenizing real world assets is that it comes with some form of centralization. This factor can generally be viewed as a problem by crypto natives and would also raise questions amongst traditional investors.

Generally, one would imagine that traditional investors are used to having to trust traditional systems that enable the trading of physical assets like gold to have the reserves, so why would they question companies issuing tokenized versions of these assets if the centralized factor is the same as always?

That is a great question and rather a simple one to answer. In fact, the answer is in the question, it's just a matter of how you read it.

The reason why investors would be concerned and potentially not interested is that there's generally no point to buy a tokenized version if the ultimate risk factor remains the same. At the end of the day, it's a bunch of tokens on-chain, you can't really verify that the underlying asset being traded is always in the physical reserve.

Of a surety, a number of projects will talk about transparency and publish, in different ways, a form of proof of reserve on-chain but the intermediary risk does not really go away, still.

This is because beyond the risk of reserves not being kept, there's the factor of not truly holding control of your assets, which fundamentally, is what value should come with tokens, complete ownership.

A project I stumbled upon recently that got me thinking about all of this is Uranium Digital, which calls itself the first 24/7, institutional-grade uranium trading platform that offers physical settlement.

The project recently raised $6.1 million in seed funding on 20th March to modernize Uranium trading through tokenized spot markets with 1:1 backings.

The project is still in its development stages, so I quickly had to explore what the Uranium market looks like.

Uranium is a heavy and radioactive metal that is naturally found in small amounts in rocks, soil, and water. Uranium is best known for its use as fuel in nuclear power plants and in nuclear weapons.

Yep, that's definitely a big one. The market value per pound appears to be at $58.96 currently according to data from ycharts.com.

This is a market with heavy political attention and influence and demand from the United States seems to be on the rise, at least as reported to have increased by 27% in a 2023 report by Visual Capitalist but there's some supply constraints.

Nonetheless, this remains an interesting market to be tokenized given that energy is generally an investment segment with growing demands and AI developments, specifically, is only going to further increase that demand.

That said, the question still remains, why would traditional investors care for trading or purchasing tokenized representation of physical/traditional assets like this?

Incentives is ultimately how they can be bought

Crypto adoption has always been about incentives and the tokenization of real world assets will be no different. To gain mass adoption from traditional investors, projects have to devise ways to incentivize investors to move from trading/investing via traditional markets to the tokenized alternatives.

The best form of incentives will generally always be low-risk yield on invested capital. Certainly, this is something the industry is still trying to figure out when it comes to what's truly low risk, fairly rewarding and sustainable.

Just as I've said in some past articles on real world assets that I've written, incentives will not only attract liquidity, it will play a huge role in making said liquidity active within the cryptocurrency markets. This is something that is very important as active volume creates value(revenue) for blockchain ecosystems and trillions in real world assets coming on-chain need to be incentivized to become active liquidity.

Posted Using INLEO