Tokenization is going to change everything.

We are in the early stages, with Real World Assets (RWA) only getting some recent attention. The next half decade will see an enormous amount of buildout in this segment. By the end of the decade, we will have a new financial system in the sense of a closer link between public and private companies.

Today, there is a clear distinction. There is a process which a company has to go through before trading publicly. It tends to be costly and require the services of an investment bank that is experienced in this area.

Becoming a public company has certain benefits. The access to capital markets probably heads the list. On the downside, there is a lot of regulation that must be complied with, again adding to cost and taking the focus of key members of the company.

Private companies tend to be more limited, especially in capital. Access to markets is cut off and liquidity is non-existent. Existing from one of these companies is often difficult since valuations tend not to be market driven. Often, the only way out is to go public.

Tokenization changes this. What will things look like in 5-10 years?

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The Changing World Due To Tokenization

Liquidity is crucial. Even within the public realm, there are companies that are engulfed with this, such as a Tesla or Apple, along with this who are dry as can be (most penny stocks).

Thus, even being public does not ensure having ample liquidity.

Of course, the crypto market mirrors this.

Bitcoin and Ethereum, the two leading coins based upon market cap, are very liquid. Each day, large positions are moved, providing investors and traders with more confidence. Tesla purchased $1.5 billion in BTC a couple years ago, then sold $1.25 billion almost immediately. Basically, the company was testing the liquidity.

Most of the crypto world resembles penny stocks. We see some tokens moon, resulting in a couple wallets holding the majority of the value. This is a mirage since the price would crash if the whales started to unload. Hence, the balance in the wallet only exists on "paper".

The result is that tokenization will expand the liquidity for many entities. This, as always, boils down to demand. People do not want garbage and that will always suffer from liquidity issues eventually. There could be massive volume on a pump but the dump dries up buy demand.

Government Control versus Frictionless

Tokenization reduces friction. This is a fact that cannot be denied.

The basic essence of crypto is one wallet transferring value to another. Crypto-assets take on many forms and offer utility on various scales. Nevertheless, moving a token around is some type of value transfer. It is no different than making a payment using currency or selling stock.

We can forecast with great certainty that governments are going to have a cow over the idea of tokenization. The push is already on to control crypto. We saw a number of bills in the works heading through the United States Congress.

Politicians are simply not going to give up control.

The tokenization of RWA has to scare the daylights out of them. If they thought stablecoins posed a threat, that is minor compared to tokenization applied to RWA.

If we take a small step back, the disruption of equity markets due to tokenization is evident. The fact that, so far, this is basically unregulated means that anyone can participate. Of course, this is where the fight with governments will enter. Like the aforementioned stablecoins, regulation will start the battle, placing the first line in the sand.

Ultimately, it is the response of the industry that determines the future. We are in a technical world. The digital age means incumbents do not have the same protections as before. They still turn to the government, believing laws will defend their positioning.

FinTech proves that, even within this framework, things can change. Once we move outside of it, where much crypto development occurs, we see the challenge for governments.

Tokenization is going to change everything. At some point, we are going to see more than a quadrillion dollars generated from these assets. It is a process that is just starting but will evolve quickly. Major institutions will help it along since they excel at infrastructure building. However, over time, the decentralized world will close the gap.