In the cryptocurrency space, lexical analysis is the latest buzzword that is attracting not only Web3 natives, but more importantly, the giants of the world of traditional finance (TradFi).

Despite all the innovations happening in finance over the past decades, the industry continues to follow tradition in terms of intermediaries and limited accessibility, unlike today's fast-paced digital world.

In order to meet this, businesses are leveraging trends like tokenization, which has the power to completely transform the financial industry by altering the usage, management, and monetization of investments.

Tokenization is a process in which the rights to an asset are converted into a digital token on the blockchain, and the ownership rights are sold and transferred on a digital platform. Almost anything can be tokenized, including but not limited to:

• Gold, art

• Collecting

• Real estate

• Luxuries

• Data

• US Treasury Bond Contracts

• Public and private capital

• Debt

• Investment funds

• Infrastructure

Asset tokenization is expected to be a multi-trillion dollar market in the real world asset tokenization, currently worth around US$300 billion.

Efficiency of tokenization

The current financial system is fraught with delays, complexity and inefficiency. Using blockchain technology, tokenization improves efficiency , reduces costs, and increases transparency. Moreover, it increases the liquidity of traditionally illiquid, non-crushing assets.

We will see markets that have historically been inefficient become much more efficient.

said Pat O'Meara, CEO and Chairman of Inveniam, speaking about tokenization during a keynote at the conference. The first TokenizeThis conference from the Security Token Market (STM).

Real assets' value can be unlocked and exchanged in real time by representing physical assets as digital tokens on a distributed digital ledger. Unlike traditional markets with set trading hours, the crypto space allows these tokens to be traded 24/7. Increased liquidity is one of the most important benefits of tokenizing real assets, as well as increased investor confidence due to the transparency built into blockchain technology, which reduces the likelihood of ownership conflicts.

Over the past few hundred years, banks have played the role of mediating trust between individuals, corporations, cities and states. But tokenization removes these common barriers to entry into traditional financial markets and reduces costs.

Even the US Federal Reserve is showing strong interest in tokenization, as Fed Chair Michelle Bowman announced earlier this month.

“Tokenization is a topic of research by the Federal Reserve and central banks worldwide, as new digital assets now concentrate on tokenizing specific traditional or even new types of money”

She said the topic will inform other issue areas, including: “ stablecoin regulation, new banking oversight, and efforts to improve the current payment system.

Access markets in new and innovative ways

From an investor's perspective, tokenization is significant because the ability to turn real assets into tokens can pave the way for a whole new world of products and services, allowing them to diversify their investment portfolios, as should every individual and organization on the planet. worldwide, irrespective of size or wealth.

"This makes it possible for people to access capital markets in sparkling and innovative ways, loose from barriers maintained by set up gamers (like banks) that call for lease."

said O'Meara of the $80 billion-asset platform Inveniam.

While investors gain greater democratization and access to previously unavailable assets, entrepreneurs gain access to a wider pool of investors and scale faster.

But for investors, it's not just access to previously inaccessible markets, but rather the best way to preserve value. O'Meara elaborated on this topic at the TokenizeThis conference, pointing out how banks play the role of mediating trust between individuals, corporations, cities and states. In this role, the bank directs its clients' funds to expand capital goods, civil infrastructure and technological innovation, and it has "had a huge impact on stimulating creativity and innovation, but for the client, this entails taking on this bank's corporate risk.

We are now seeing the evolution of banks becoming the primary mechanism through which excess capital is allocated to innovation and the creation of economic enablers created by individuals, corporations, entrepreneurs, technologists and governments building the infrastructure for this global economy where the Internet connects the supply chain , O'Meara said.

Stored Value Delivery Conversion

Beyond the economics of delivery, blockchain and the Internet of Value are also transforming the delivery of stored value by eliminating these banks as intermediaries—trust brokers.

However, this does not mean that the bank's role will disappear; rather, it would be changed " dramatically " where banks are not going to be the central intermediary, argues O'Meara.

"We're going to look at ways that people can engage in the global economy and protect their value from perceived risk."

According to O'Meara, in the next iteration we won't need an intermediate bank oracle where the media must be currency; rather, we can begin to tokenize a RWA Tokenization development . "The daily, weekly, monthly, and quarterly liquidity of this tokenized real asset modifies its store of value." He said.

He argued that cash savers, which is a large part of the middle class around the world, are negatively impacted by the central bank's money printing policies because those savings are deflated every month, every year. But if one is the owner of the asset or the creator of the asset, one is protected from this inflation.

Real asset tokenization allows people to invest their money in a real asset that grows with the currency. This means that fiat currencies such as the dollar, euro or pound will not disappear.” they will exist in a world where Bitcoin is next to them , O'Meara said.

DeFi's participation in tokenization

A potential financial industry innovation that could modernize and completely change the financial landscape is tokenized real assets. As the cryptocurrency market matures, tokenization of the multi-trillion-dollar global financial services sector is gaining momentum. However, tokenization adoption is still in its early stages and may take some time to become widely accepted. However, technology has the potential to change the way we handle and invest in real-world assets, and it is already seeing its use in the decentralized finance (DeFi) sector.

Real assets play a critical role in DeFi, and protocols are increasingly tapping into traditional credit markets such as equity and debt financing. After all, the market potential is enormous: credit fuels trillions of dollars of business and much of the global economy.

While DeFi primarily uses digital assets, real assets such as stocks, commodities or houses are critical to connecting to the existing financial system. By tokenizing these assets, DeFi platforms allow users to access, trade and use them in a decentralized and borderless manner. Moreover, real assets reduce risk, provide opportunities for diversification, and give DeFi greater stability.

Incorporating real assets on-chain and into the DeFi ecosystem not only provides market efficiency and access to liquidity, but also unique collateral capabilities that cannot be found in traditional markets.

For the DeFi ecosystem, this means new opportunities to generate investment returns that are significantly higher than existing DeFi projects, providing access to sustainable income opportunities. Additionally, it broadens the customer base beyond traditional finance and provides access to a range of off-chain markets.

A look into the future

Already, a number of dApps have tokenized assets worth hundreds of millions of dollars. However, according to O'Meara, over time we will start to see new types of DeFi protocols, and this will be the stage where DeFi is integrated with traditional commercial banking and mortgage banking.

At this point, people will be able to say, what is the cheapest source of capital for me? Is this a traditional bank? Am I going to the capital markets, institutional institutions, or can I connect directly to the DeFi protocol? O'Meara said, adding that this would fundamentally change the role and manner in which trust is communicated.

However, this future will not be dominated by a single blockchain development. With the proliferation of Layers 1, each with their own strengths, weaknesses and ecosystems, DeFi protocols, as we already see, will use multiple blockchains.

We will live in a multi-networked world, ” O’Meara said. He further noted that such a future “ consider the provision of loans by banks as a core function, but not as a throughput function, but as a mechanism for starting and stopping payments. According to him, in the coming decades, the role of the bank will be completely redefined, and only those who own relationships with their clients digitally will survive.

I think people will trust banks to service assets and act as pricing oracles, and they will be there for the long term. O'Meara said.