Citi Forecasts $4 Trillion in Tokenized Assets: A Game-Changer for the Finance Industry
According to recent reports, giant banking forecasts substantial growth in adopting digital securities and distributed ledger technology-based trade finance in the next decade. By 2030, they expect a whopping $4 trillion to $5 trillion worth of tokenized digital securities and $1 trillion in trade finance volumes using distributed ledger technology.
Citigroup Inc., a renowned US-based banking giant, has recently published a report titled “Money, Tokens, and Games: Blockchain’s Next Billion Users and Trillions in Value,” which outlines the future of asset tokenization and the blockchain economy. The report highlights an inflection point where the potential of blockchain will be realized and measured in terms of billions of users and trillions of dollars in value.
Citigroup’s report on the future of asset tokenization and the blockchain economy predicts that tokenization will drive mass adoption in the blockchain industry. The report suggests that the tokenization of financial and real-world assets could be the “killer use case” for blockchain, with tokenization expected to grow by a factor of 80x in private markets and reach almost $4 trillion in value by 2030. This forecast highlights the potential for significant growth in the blockchain space, with tokenization being the key driver.
Citigroup Inc., the banking giant, predicts that the tokenization of digital securities will result in a market worth $4 trillion to $5 trillion by 2030. In addition, the report estimates that distributed ledger technology-based trade finance volumes will reach $1 trillion by the same year. The report also predicts that $1.9 trillion of the tokenized value will come from debt, $1.5 trillion from real estate, $0.7 trillion from private equity and venture capital, and $0.5–1 trillion from securities.
Here is the link to the report where XinFin XDC Network Chief Operations Officer shared his thoughts about the Trade Finance Gap and Tokenization
Why have previous blockchain initiatives and pilots in trade finance failed?
Blockchain is an ideal technology for trade finance and meets its primary needs of real-time tracking of cargo and documents, increasing transparency, reducing counterparty risk, enabling automation and swift settlements, and reducing transaction costs. The trade finance process involves the verification of documents, authentication, transfer of titles from party to party, and multiple parties operating in different jurisdictions and on other platforms, and it is a mammoth coordination task.
Until now, some consortiums have created bespoke blockchain and non-blockchain platforms. For example, in 2018, IBM and Maersk founded TradeLens, a blockchain-enabled trade platform. TradeLens provided every entity involved in global trade with digital tools to share information and collaborate securely. However, in November 2022, the platform and the offerings were discontinued, as global industry collaboration could not be achieved.
TradeLens could not reach the level of commercial viability necessary. This was a collaboration and adoption problem. A platform led by a shipping major is not seen as a neutral party. TradeLens was the brainchild of a shipping company and a technology company, but they had trouble onboarding banks. One reason: no legal framework accepts digital documents.
Will it work this time? Why will we see blockchain adoption in trade
One of the drivers for the adoption of blockchain in trade finance is that the UK is going to start accepting digital documents as part of international trade. This is groundbreaking because, given that most of the global trade follows English law, it makes digital documents in most international trade acceptable in a court of law.
This grants much-needed legal and regulatory clarity to trading participants and even banks to start their digitization processes. Electronic transferable records may be particularly relevant for certain business areas, such as transport and logistics, and finance.
English law accepting electronic documents will be a game-changer for trade finance and blockchain’s adoption.
Moreover, blockchain networks are becoming friendly because they have realized that if they operate in silos, they are not going to get critical mass to carry on operations, let alone see mass adoption. The industry is also experiencing a “network of networks,” which essentially connects the individual blockchain networks so they are interoperable.
The learnings from the blockchain and supply chain industry, as well as the openness of legal and regulatory bodies will help the flow of information in the supply chain and trade finance sector get faster.
What percentage of global trade flows will involve digitized flows and use
the blockchain for part of their process by 2025? By 2030?
Tough to give a number, but with more countries accepting electronic trade
documents, I feel we should see this percentage moving to two digits by 2025.
By 2030 and beyond, we will likely see greater adoption, with interoperability taking the digitized flows to higher percentages. Wider adoption will require simpler applications, low or no costs to use the basic functionalities, and new liquidity providers to support the trades.
The future of money
Much of our focus at XDC Network is on new digital currencies and payment systems because we believe they hold enormous promise. Citi’s report endorses this, stating that “a key area where blockchain/DLT will make a significant impact is in digital money. The world of money is being turned on its head with central bank digital currencies coming our way towards the second half of this decade, with many CBDC projects being partially DLT-linked.”
“Get ready for CBDC versions of the euro, British pound, and Indian rupee. Together, these four jurisdictions constitute more than 25% of the global population and 22% of global bank deposits,” write the bank’s analysts. “Hence, we think CBDCs could have at least 2 billion users and $5 trillion-plus in circulation, and half could be using partly DLT-linked models.”
Why is the US’s third-largest bank so bullish on CBDCs? It offers four key takeaways:
More big countries catching up: Initially, only a few smaller island nations and Nigeria launched CBDCs, and China was in the advanced stages of researching and piloting a CBDC. Now, major countries in terms of economy, currency, and population size are warming up to the idea of CBDCs. For example, the central banks of India, the UK, and Europe have been making plans to launch CBDCs before the end of the decade.
Billions of users: Taking into account only Europe, India, and the UK, there are about 2 billion individuals and businesses that could be using some form of CBDC. Businesses in countries with multi-CBDC bridge arrangements would also use DLT-linked CBDCs, although their domestic CBDCs would be non-DLT-linked.
Technology: Until now, only the smaller CBDC projects have been based on DLT. However, we can envision some major banks issuing DLT-based CBDCs, and India’s retail CBDC could have some sort of DLT. China’s participation in the mCBDC Bridge is based on a DLT.
Money mobilized: Central banks estimate up to 20% of deposits could transition to newer digital money formats. We could have $5 trillion of CBDCs circulating in major economies in the world in this decade, half of which could potentially be DLT-linked.”
The world’s assets will be tokenized.
Currencies are not the only type of asset to benefit from tokenization. Citi’s report makes it clear that XDC Networks’ conviction about tokenization is well-founded too.
“Almost anything of value can be tokenized — from wine to financial assets to everything in between,” write the bank’s analysts. “The significant benefits of tokenisation, especially for private funds and securities, will likely drive demand-side uptake, leaving behind expensive reconciliations and settlement failures while embracing operational efficiencies, fractionalization, and accessibility to a wider range of market participants. Beyond private market tokenization, we expect $1 trillion of the repo, securities financing, and the collateral market could be tokenized by 2030.”
Path to the future
How can the industry achieve the benefits of blockchain? To Citi’s analysts, mainstream adoption requires enablers, including decentralized digital identities, zero-knowledge proofs, Oracles, and secure bridges. Legal plumbing is also essential, as are regulatory considerations to allow adoption and scalability without “hindering innovation.”