Token wealth is red hot, but struggles to push stablecoins out of royalty By Investing.com

Investing.com — Creating digital versions of, or tokenizing real-world assets on blockchains has been at the forefront of the crypto use case. And now tokenized assets are enjoying their time in the spotlight as an alternative crop to stablecoins, but these emerging digital assets face major hurdles in terms of the widespread adoption needed to launch stablecoins.

Tokenized wealth — digital versions of Treasury bonds created on the blockchain as such — has generated a market capitalization of nearly $2.5 billion, up from about $800M since the start of the year, according to data from tracker RWA.xyz.

Token wealth: Riding the demand for yield

“This universe of token wealth has been growing rapidly over the past year approaching $2.4bn. And, although it is much smaller than the universe of $180bn of traditional stablecoins, their rapid growth has the potential to challenge the dominance of stablecoins in the future,” the analysts of – JPMorgan. said in a recent letter.

The demand for productive alternatives to major coins such as and , which often do not offer interest or reserve share, has been driving the demand for token wealth.

It makes good regulatory sense for stablecoins to avoid offering interest to their users as doing so would attract further regulatory restrictions, requiring compliance with securities law, JPMorgan said, “thereby preventing their current seamless and unconstrained use as a source of collateral in the crypto ecosystem.”

Stablecoin users, however, are passive planners willing to lower the opportunity cost of holding productive assets. They have been using various strategies to get yield from their stablecoins.

But these strategies such as secured lending, unsecured lending, basic trading “involve risk and control of ceding and maintaining their balance,” say analysts.

With US Treasury yields at multi-year highs, and now expected to remain high for a long time as the diversification of the US economy continues, benchmark government debt appears to be scratching the surface of 'yield demand' and may continue to drive dollars out of stablecoins.

Tokenized values: New children in crypto derivatives block market

Tokenized assets offer several advantages over traditional stablecoins. They provide yield to users without the need for risky trading strategies or lending, they do not require users to give up control or custody of their assets.

The token wealth market has also been fueled by institutional investors launching token funds, allowing investors to access on-chain offerings with 24/7 liquidity.

Blackrock (NYSE:) launched its first token wallet, BUIDL, earlier this year on the Ethereum blockchain, allowing investors to redeem their shares or BUIDL tokens for the USDC stablecoin through a smart contract at any time, without the need for an intermediary.

Other token funds including Blackrock's BUIDL, which has amassed a market capitalization of nearly $0.6 million since launching in April, are also looking to steal stablecoins' lunch in an important market: the crypto derivatives market.

Stablecoins are commonly used as collateral in crypto derivatives trading, with Tether Holdings' stablecoin USDT and Circle Internet Financial's USDC among the most used tokens in derivatives trading, with market caps of $120B and $34B, respectively.

A regulatory barrier to block the adoption of tokenized wealth

But this very benefit, the yield offering, that the wealth of tokens is able to dangle in front of investors is creating a huge wind in their quest to steal a large portion of the day's stablecoins.

“Tokenized wealth falls under securities law that restricts offerings to accredited investors, thereby preventing broader market adoption,” analysts said.

BlackRock's BUIDL, for example, has high entry barriers with a minimum investment of $5 million and a limit on offering these products to accredited investors.

Blackrock's massive push to persuade cryptocurrency exchanges to widely use its digital token shows that it may partially replace traditional stablecoins as collateral in crypto derivative trading, but the liquidity or lack thereof (relative to that of stablecoins), suggests these new kids are -crypto derivatives market block is unlikely to rule anytime soon.

This regulatory hurdle suggests that stablecoins — which boast a market cap approaching $180B across multiple blockchains and centralized exchanges, ensuring that merchants receive low transaction costs even for large transactions — are not at risk of losing the significant advantage they have over token wealth in terms of terms. of liquidity, said JPMorgan.

This deep liquidity, which is key to smooth trading, suggests that the wealth of tokens, with an estimated market value of $2.4B, “will eventually replace only a fraction of the stablecoin universe,” JPMorgan said.

While the bar for stablecoins to topple their perch may remain high, token Treasuries are expected to continue to grow by being able to replace “unproductive stablecoins in DAO treasuries, liquidity pools, and crypto venture funds.”