Ethereum (ETH -0.07%) may be at the start of its grand redemption arc after losing 21% of its value over the last 12 months. If it is, one of the pillars of its recovery, alongside upgrades to its blockchain tech, will be winning in one of the cryptocurrency sector’s most important segments over the coming years.
And, happily for holders, the chain is already the undisputed leader there. But can its dominance continue for long enough to deliver big returns? Let’s analyze the situation and figure it out.
This segment is big, growing, and going to grow even more quite soon
Most blockchains can host crypto tokens. On many chains, including Ethereum, those tokens can have some data associated with them. That data can denote things like legal rights to the ownership of assets that exist in the real world, like houses or land, as well as paper assets like stocks or commodities contracts.
In crypto parlance, those types of assets are known as “real-world assets” or RWAs for short. Similarly, when RWAs are encoded onto a crypto token, they’re “tokenized” and can be tracked and traded via blockchains like Ethereum. Per many estimates, by 2030, the value of these tokenized real-world assets will be in the ballpark of trillions of dollars; the only question is whether they’ll be worth $2 trillion (per the most conservative estimates) or $20 trillion (the headier estimates).
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Today, there are approximately $22.6 billion in tokenized RWAs. A slim majority of that sum is in the form of tokenized private credit contracts, with the next-largest category of asset being U.S. Treasury bills and bonds. And across all of the various categories, Ethereum is home to the largest single slice of value, with more than $7 billion in tokenized assets hosted on its chain, giving it a value share of nearly 59%.
The chain’s ecosystem of projects and tools that help investors and other users to tokenize and hold RWAs is also the largest. That positions Ethereum as the single most important chain to capture additional inflows of value from new assets being tokenized over the coming years.
Bet on ongoing leadership but not dominance
Ethereum is already the second-largest blockchain by market cap, and it’s certainly the single most important chain for decentralized finance (DeFi) and many other segments within crypto. Therefore, by virtue of the value that’s already parked on its chain, it will probably continue to be one of the leading chains in terms of attracting capital as a result of the trend toward tokenizing real-world assets. Its deep bench of developer talent, as well as it being the de facto home of many high-profile crypto investors, will also be quite helpful on that front.
But investors probably shouldn’t count on Ethereum being the ultimate winner of the RWA trend, even if it’s going to remain fairly competitive in the segment.
It simply isn’t specialized for the purpose, which means that smaller chains that do specialize will likely end up being the preferred option for institutional investors as well as other wielders of major capital. Put differently, its technology is not optimized or streamlined for handling real-world assets, and at least some of its competitors will be. Of particular concern are things like security, account identification, and other elements that pertain to anti-money laundering (AML) and know your customer (KYC) best practices, all of which are important to asset managers, especially.
Thus, the tokenization movement, assuming it continues, constitutes a moderate-strength reason to consider buying Ethereum, but it isn’t something that can be expected to keep pushing the coin’s price higher and higher forever. Within the next three years or so, expect its early lead to be significantly eroded.
Until then, expect it to be experiencing a bit more buying pressure than it has been recently. Anyone who wants to park their assets on its chain will need to hold some of the coin to pay for transaction costs, and minting new tokenized assets is associated with expenses too.
