- Coinbase has published a report on “Tokenization and the New Market Cycle.”
- The report discusses how tokenization has a lot more potential now by offering immediate settlements.
- In the past year, there has been reportedly a shift from private credit protocols to US Treasuries.
Coinbase has recently released a “Tokenization and the New Market Cycle” report that suggests tokenization as a “vital use case for traditional financial players,” which could establish a significant presence in the upcoming crypto market trends over the next 1-2 years.
The report mentioned that in 2017, the opportunity cost for tokenization was 1.0-1.5%, compared to today’s nominal interest rates exceeding 5.0%. The increase could significantly enhance the capital efficiency of immediate settlement for financial institutions, as opposed to the traditional T+2 settlement.
Coinbase stated that during the crypto winter of 2017, tokenization failed to migrate trillions of USD worth of real-world assets (RWAs) onto blockchain networks. However, the recent revival of interest in tokenization could be attributed to the crypto market’s decline in 2022. According to Coinbase, the current crypto cycle differs significantly from the previous bear market due to the global interest rate environment.
Between 2017 and 2018, the Federal Reserve raised rates by 175 basis points to 2.25-2.50% while maintaining a stable balance sheet, according to the report. In contrast, the current tightening cycle since March 2022 has seen a significant 525 basis point rate hike to 5.25-5.50%, along with a balance sheet reduction of over $1 trillion in the last 18 months. Meanwhile, higher bond yields have attracted retail investors, particularly in tokenized US Treasuries, a trend less evident in 2017.
Furthermore, the report declared that in the past year, there has been a shift from private credit protocols to US Treasuries in RWA protocol allocations, alongside a growth in RWAs used as collateral in Maker vaults. The growth resulted in over $3 billion worth of DAI.
Coinbase’s report emphasized that higher interest rates have made capital efficiency more critical for institutional investors. Tokenization is gaining traction with benefits like 24/7 operations, automated intermediaries, and reduced counterparty risk. It has shifted from tokenizing illiquid assets to capital market instruments, particularly US Treasuries, bank deposits, and repos.
Disclaimer: The information presented in this article is for informational and educational purposes only. The article does not constitute financial advice or advice of any kind. Coin Edition is not responsible for any losses incurred as a result of the utilization of content, products, or services mentioned. Readers are advised to exercise caution before taking any action related to the company.
