Moody’s Says Shift to Tokenized Finance Will Start Slowly, Then Accelerate After Tipping Point
Summary
- Moody’s said the shift to a digital financial system built on asset tokenization will be slow at first but spread quickly after passing a tipping point.
- The report said the market for tokenized real-world assets (RWAs) has risen about 420%% since the start of this year to about $31.6 billion.
- Moody’s said broad adoption of stablecoins for on-chain payments could pressure the existing revenue models of some payment companies and correspondent banks.
Forecast Trend Report by Period
Major US banks and financial institutions view a shift to a digital financial system built on asset tokenization as inevitable.
Cointelegraph reported on May 14 that Moody’s Ratings said in a report that large banks and financial-market participants expect the transition to tokenization to be slow at first, but to spread rapidly once it passes a tipping point.
Based on interviews with major financial institutions, Moody’s said market participants broadly agree that asset tokenization will eventually see widespread adoption. The key variables are the speed of adoption and the sequence in which it spreads.
The report said tokenization is likely to expand gradually in the near term, starting in relatively simple areas such as funds and short-term financial instruments. It added that the market could then enter a broader expansion phase as the number of participants, asset classes and use cases increases rapidly.
The tokenization market is already growing quickly. According to RWA.xyz, the market for tokenized real-world assets, or RWAs, has risen about 420% since the start of this year to about $31.6 billion.
Moody’s said most large banks and financial institutions have set up dedicated digital-asset teams and are participating in experiments involving new infrastructure. It described those efforts as strategic moves to prepare for a potential surge in future demand.
Morgan Stanley, for example, launched a new digital-asset organization earlier this year and announced plans to expand its cryptocurrency exchange-traded fund and wallet services.
Moody’s also outlined scenarios for how the financial system could evolve.
The most likely scenario is gradual growth. In that case, stablecoins and tokenized deposits would spread in some areas, while traditional banks and asset managers would retain their core roles.
If regulatory uncertainty and weak demand limit the spread of tokenization, changes to the financial system would also remain limited.
The biggest shift would come if stablecoins are widely adopted as a means of on-chain payment. In that case, some payment companies and correspondent banks could face pressure on their existing revenue models, Moody’s said.
The International Monetary Fund said in April that tokenization could improve financial efficiency and transparency, while also posing risks to financial stability.
