The Future is Tokenized: Why Now is the Time to Invest in Blockchain Innovation
The Future is Tokenized: Why Now is the Time to Invest in Blockchain Innovation
As we mark a decade of leadership in blockchain fund of fund strategies at Blockchain Coinvestors, we find ourselves continually reexamining our investment thesis to stay ahead in this rapidly evolving space. In our last newsletter, we highlighted how blockchain technology has not only kept pace with the internet’s early development but has, in fact, reached commercialization more swiftly. Just ~15 years after the release of the Bitcoin whitepaper, blockchain now underpins trillions of dollars in value and boasts a robust and growing ecosystem with several products that have achieved strong market fit.
What is particularly striking is how cryptocurrencies like Bitcoin and Ethereum alongside other blockchain supported financial products such as Stablecoins and tokenized money markets are becoming integral to the global financial system. Major financial institutions, including BlackRock and Fidelity, are now deeply invested in this space, signaling broad acceptance and integration of blockchain into mainstream finance.
Our core thesis at Blockchain Coinvestors has always centered on the digitalization of money, assets, and commodities, viewing blockchain as a foundational technology for financial infrastructure. Central to this is tokenization, which enables these financial products to move seamlessly along digital rails.
As we approach the first close of our latest fund-of-funds, the momentum towards a new era of digital finance and commerce is undeniable. The proliferation of digital monies, assets, and commodities, coupled with rising institutional adoption and regulatory support, indicates that the future we envisioned over a decade ago is rapidly becoming reality.
In this Letter from London, we delve into the current state of tokenization and explore what the next decade might hold for this transformative technology, offering insights on how best to capitalize on these developments.
Digitalizing Finance Through Tokenization
Tokenization is a term frequently associated with blockchains, but what does it truly mean?
Tokenization is the process of turning something real, whether physical or digital, into a digital token on a blockchain. This means that ownership rights or shares in real-world assets—like dollars, treasury bonds, real estate, or art—are represented by digital tokens, which are securely managed and traded on blockchains.
Tokenization offers several key benefits. It makes it easier to divide and transfer ownership, increasing the liquidity of assets that are usually hard to sell quickly. It also speeds up transactions, cuts costs, and provides global market access 24/7, making investments more accessible to everyone. In short, tokenization brings the advantages of cryptocurrencies, such as security, low costs, and fast transactions, to traditional financial products.
Blockchain’s First Killer Apps: The Early Success of Tokenized Dollars and Treasuries
Tokenization has quietly but swiftly become a significant component of the financial system, and it has done so by starting with two foundational financial products: U.S. dollars and U.S. Treasuries (via money markets). These are ubiquitous and straightforward products, with simple, easily evaluated counterparty risks, making them ideal for early adoption in the tokenization space.
It’s no coincidence that tokenization began with these products—they are among the simplest and most deeply understood financial instruments globally. As a result, they have provided a strong foundation for tokenization's initial success. The world's leading financial institutions have been testing the waters with these tokenized products, and the outcomes have been nothing short of remarkable. This early success has set the stage for broader adoption and innovation in the financial system, paving the way for tokenization to revolutionize other asset classes in the future.
Stablecoins: The Tokenization of Dollars
Stablecoins, or tokenized dollars, are simply the digital representation of the U.S. dollar on a blockchain. This innovation gives the dollar many of the same characteristics as Bitcoin, allowing for near-instant global transactions at a fraction of the cost, without the need for traditional intermediaries and the associated high transfer fees.
For those in developed countries, digital dollars may already be familiar through platforms like Apple Pay or Venmo. However, in developing regions, transferring money remains a significant challenge, often hindered by high costs and bureaucratic hurdles. According to the World Bank, global remittance costs average around 6.35% for sending $200 and 4.40% for sending $500 from G20 nations abroad, making traditional transfers prohibitively expensive for many.
The impact of stablecoins is clear: over $160 billion in tokenized dollars are now in circulation within the blockchain ecosystem. Leading this charge are Tether, with $116 billion in USDT, and Circle, with $34 billion in USDC. Remarkably, stablecoin settlement volumes are now approaching those of major payment networks like VISA, underscoring the growing importance of stablecoins in the global financial system.
Source: Nic Carter, Castle Island Ventures
Tokenization of U.S. Treasuries (via Money Markets)
Following the U.S. dollar, the next most liquid and easily understood asset is U.S. Treasuries. It’s no surprise, then, that after the success of stablecoins, tokenized money markets are quickly becoming the next financial product to gain traction on blockchain-based rails.
Money markets are typically low-fee funds that provide investors with access to U.S. Treasury yields within a specific time frame. For example, a 3-month money market fund continually purchases 3-month U.S. Treasuries as the current holdings expire, effectively making the U.S. government the counterparty risk.
Just as tokenized dollars offer significant benefits, tokenized money markets deliver the same advantages as traditional money market funds (MMFs), such as low-risk investment in short-term debt instruments and cash equivalents. However, they come with the added benefits of blockchain technology, including enhanced efficiency, transparency, and accessibility.
The largest tokenized money market to date is BlackRock's USD Institutional Digital Liquidity Fund, commonly referred to as BUIDL, which was launched in March 2024. This fund has rapidly grown to surpass $500 million in assets under management (AUM), a remarkable achievement for such a new fund. BlackRock partnered with Securitize, a Blockchain Coinvestors portfolio company specializing in tokenizing securities, to launch its first tokenized fund.
BlackRock is not alone in this space. Other major institutions, including JPMorgan, Fidelity, Franklin Templeton, KKR, Deutsche Bank, Abrdn, and Hamilton Lane, have also introduced live tokenized MMFs. Collectively, these institutions manage over $1.5 billion in tokenized government securities. The rapid growth of these funds is evident in the live data from Dune Analytics, which shows that the value of tokenized MMFs has more than doubled from $870 million at the beginning of the year to $1.86 billion today.
What’s Next for Tokenization
In just 15 years, blockchain technology has become a critical component of financial markets, particularly for U.S. dollars and U.S. Treasuries. These are the simplest and most recognizable financial products, with deeply liquid markets, making them ideal candidates for early tokenization. Their rapid adoption highlights how the market is embracing the clear benefits of tokenization.
What’s even more telling is that the world’s leading financial institutions are not merely observing this trend—they are actively racing to innovate and expand tokenization to a broader range of financial products and markets. The momentum is undeniable, and it’s clear to us that tokenization will continue to proliferate across various financial sectors.
According to a report by McKinsey, the tokenization of real-world assets (RWAs) is expected to grow into a $2 trillion market by 2030, with mutual funds and ETFs being among the first major adopters.
Meanwhile, Boston Consulting Group projects an even more ambitious figure, estimating a $16 trillion tokenized market by 2030. While time will tell which prediction proves more accurate, both reports agree on one thing: tokenization is set to play a transformative role in global finance over the next 5 to 10 years.
Source: Boston Consulting Group
We are already witnessing significant progress in other asset classes and commodities. For example, California’s Department of Motor Vehicles (DMV) has recently undertaken a large-scale tokenization project, converting 42 million car titles onto the Avalanche blockchain. These digital titles will soon be claimable by vehicle owners through a secure mobile wallet app, streamlining the title transfer process and reducing the need for DMV visits. This innovation not only simplifies the ownership transfer but also enhances record-keeping and eliminates the risk of losing physical documents.
Commodities are also emerging as the next significant frontier in the tokenization space. Tether has introduced a tokenized version of gold, XAUt, which has already achieved a market cap exceeding $600 million. Similarly, companies like AgroToken are pioneering the tokenization of agricultural products, such as grain, to provide farmers with immediate, 24/7 liquidity, thereby improving access to financial instruments and reducing bureaucratic hurdles.
Other commodities, such as carbon credits, are also being tokenized. Companies like MOSS and Toucan are leveraging blockchain to enhance the liquidity and tradability of carbon credits, potentially streamlining the carbon offset market and making it more accessible to a broader range of participants.
In fact, you can see from the below graphic that all of the world’s top 10 financial institutions are pursuing a tokenization strategy.
Top Financial Institutions Snapshot of Tokenization Strategy
In our view, the tokenization of the financial system—including its monies, commodities, and assets—is inevitable. The writing is on the wall. Tokenization is not just a trend; it’s the future of global finance.
The View from London: The Decade of Tokenization
Blockchain technology has only been around for 15 years, a remarkably short time compared to other technological innovations like the internet, which took nearly three decades—from the 1960s to the 1990s—to develop before producing any broad commercial products. Yet, despite its relative youth, blockchain has already cemented its importance within the financial system, driven by three key applications:
Bitcoin and Ethereum ETFs: These include some of the most successful ETF launches in history, demonstrating the strong market demand for blockchain-based financial products.
Stablecoins: Tokenized dollars have become a significant player in the global settlement market, surpassing companies like PayPal and rivaling credit card giant Visa in transaction volumes.
Tokenized Treasuries: Major institutions, such as BlackRock, have introduced tokenized money markets that have rapidly grown into multi-billion-dollar markets, showcasing the tangible benefits of tokenization.
The market has clearly recognized and rewarded the advantages of tokenization for financial products. As a result, most major financial institutions now understand that participation in this space is not optional—it’s essential. For some, like BlackRock, tokenization represents a massive opportunity to launch the next generation of financial products.
Over the next decade, we anticipate that tokenization will continue to expand into other areas of the financial system, including assets like securities, bonds, and commodities. This forward-looking view is central to our fund-of-funds strategy, which provides broad coverage of these emerging trends.
At Blockchain Coinvestors, we’ve never been more excited and optimistic about the future of financial markets. We invite you to join us on this transformative journey.
Thank you for reading,
Mitch Mechigian
Partner, London
About Blockchain Coinvestors
Blockchain Coinvestors is the best way to invest in blockchain businesses. Our vision is that digital monies, commodities, and assets are inevitable and all of the world’s financial infrastructure must be upgraded. Our mission is to provide broad coverage of early stage blockchain investments and access to emerging blockchain unicorns. Blockchain Coinvestors’ investment strategies are now in their 10th year and are backed by 400+ investors globally. To date we have invested in 40+ pure play blockchain venture capital funds in the Americas, Asia, and Europe and in a combined portfolio of 1,250+ blockchain companies and projects including 95 blockchain unicorns. Blockchain Coinvestors’ first fund of funds ranks in the top decile amongst all funds in its category on both Pitchbook and Preqin. Headquartered in San Francisco with a presence in London, New York, Grand Cayman, Zug and Zurich, the alternative investment management firm was co-founded by Alison Davis and Matthew Le Merle.
“The best way to invest in blockchain businesses”