Tokenized Assets Hit a New Record in May. That's Fantastic News for These 3 Cryptocurrencies.
Key Points
Tokenized asset values are increasing across the crypto sector.
Ethereum is the segment leader and probably will continue to be.
Solana and XRP will likely keep getting some traction within the niches they're targeting.
With the total value of tokenized real-world assets (RWAs) reaching $28.9 billion in May, a 10th straight monthly record and surpassing $32 billion in mid-June, it's on the road to becoming one of the crypto sector's most important growth areas. Boston Consulting Group (BCG) expects the market for tokenized assets to reach $16 trillion by 2030, making it a gargantuan scaling issue that a few blockchains will likely get paid to solve.
In particular, three coins stand to gain the most: Ethereum (CRYPTO: ETH), Solana (CRYPTO: SOL), and XRP (CRYPTO: XRP). Let's take a look at each and understand their competitive edge in this emerging area.
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Ethereum is the hub for capital
About half of all tokenized assets -- cryptos that represent ownership of stocks, bonds, or other assets and trade on a blockchain -- are parked on Ethereum, with the chain accounting for more than $16 billion in tradeable tokenized asset value as of mid-June.
By way of that mass alone, the chain will almost certainly remain a leader in asset tokenization, especially given its roughly $169 billion in stablecoins, which serve as the main liquidity vehicle for settling transactions related to these assets. Capital begets capital, especially given that institutional investors pursuing tokenized asset management or investing need to utilize vast sums of liquidity for their activities, which is currently available only on Ethereum.
What's more, when a tokenized asset, such as a Treasury, changes hands on the network, it incurs transaction fees, and part of each fee is destroyed to reduce the outstanding supply of Ether, Ethereum's native coin. Thus, if a lot of tokenized capital finds its home on Ethereum, it could increase the price of the coin.
Investors should note that this mechanism only enriches holders of Ether in theory, rather than in practice, because the network has been upgraded repeatedly to reduce transaction costs; trading activity doesn't actually create much supply (or price) pressure.
That could change in the future, but for now, it's a hole in the investment thesis despite its very high probability of onboarding billions more in tokenized assets during the coming years.
Solana is winning the emerging segments
Solana had $2.9 billion in tokenized assets as of June 15, and tokenized stocks are where the chain excels. The tokenized stocks segment, across all blockchain, grew by 23% to reach $1.8 billion in tradeable value during the prior 30 days.
Its edge is the network's speed and throughput capacity to offer an inexpensive and snappy experience to those who use it. Stock-style trading activity needs those cheap fees and rapid transaction finality, and none of Solana's similarly sized competitors come anywhere close in either dimension.
The caveat is that value capture for Solana holders is even more paltry than for Ethereum holders. The chain's fees are tiny by design. That means an investor building a crypto portfolio focused on asset tokenization will get the most exposure to tokenized equities by buying Solana, but the link between network use and token price is, for now, tenuous at best.
XRP has a wide compliance moat
The XRP Ledger's (XRPL's) tokenized asset 22z22``````` is the smallest here, at $370 million, down 14% during the past 30 days. Still, at this point last year, the chain had around $108 million in tokenized assets.
What separates XRPL from its competitors is its compliance machinery, which is baked into the base protocol layer rather than being assembled from third-party services, as is more common on chains like Ethereum. For a bank or other financial institution looking to adopt a new piece of asset management technology, the idea of assembling a bespoke regulatory compliance stack likely elicits a grimace. And that's why they're more likely to onboard their capital to the XRPL instead, as it's already configured for their needs.
Alas, the catch from an investment perspective is the same as with Ethereum and Solana. The XRPL is cheap to use and fairly fast, but the amount of XRP burned per transaction simply isn't meaningful compared to the coin's outstanding supply. But that's a fixable problem, and the chain will probably capture a lot of the institutional capital flows related to tokenized assets all the same.
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Alex Carchidi has positions in Ethereum and Solana. The Motley Fool has positions in and recommends Ethereum, Solana, and XRP. The Motley Fool has a disclosure policy.
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