2 Ways to Invest in the Soaring Tokenization Market

Tokenization, a way to record ownership of almost any asset on the blockchain, could transform the way we spend, save, and invest. It may be the biggest shift in the crypto industry since the launch of Bitcoin.

It would take major changes to our financial plumbing for tokenization to become the norm, but if it does, ownership records of everything from the dollars in your account to the roof over your head could move onto the blockchain.

A token can represent a share in a company, part of a real estate property, or ownership of a piece of art. Blockchain tokens can be traded at extremely low fees almost instantaneously. Blockchains don't follow office hours, so transactions can take place at any time of the day or night, without geographical restrictions. That would, for example, make it easier for a trader in Asia or Europe to buy U.S. assets. Tokens can be split into even smaller parts than fractional shares today allow, which could make investing more accessible to a wider group of consumers.

To give you an idea, leading global strategy firm McKinsey estimates the tokenized asset market could grow from $30 billion in 2024 to as much as $4 trillion by 2030. That said, it is one thing to identify a hot trend and another to include it in your portfolio, particularly when many of the companies involved are private. Here are two ways to invest in real-world asset tokenization.

1. Cryptocurrencies that issue tokenized assets

Two blockchains that are already leading the emerging tokenized economy are Ethereum (CRYPTO: ETH) and Solana. Ethereum is the biggest, and Solana is among the fastest, and that's helped them attract big financial institutions that want to issue tokenized assets.

Ethereum accounts for $15 billion of the tokenized assets in circulation today, over 55% of the total. The blockchain also hosts around $55 billion in decentralized finance (DeFi) funds, a separate but related metric that tracks assets locked in smart contracts.

If tokenization grows as McKinsey predicts and Ethereum captures even 20% of that $4 trillion market, we're talking about $800 billion in tokenized assets flowing through the network.

Historically, there's been a close correlation between Ethereum's price and on-chain funds, so a surge in on-chain funds would likely boost its price.

2. Listed companies with tokenized products

Another way to get exposure to the tokenized asset space is through companies like Circle Internet Group (NYSE: CRCL). Crypto and stocks are different investments, and public companies can be easier to evaluate and carry less regulatory risk. Circle, the issuer of the second-biggest stablecoin, USD Coin (CRYPTO: USDC), stands to gain from a tokenization boom in two ways.

Firstly, stablecoins are tokenized versions of traditional currencies, such as the U.S. dollar. As tokenization and blockchain transactions become more commonplace, stablecoin usage will expand. Circle has to back each stablecoin it issues with accessible assets such as U.S. Treasuries, so the more USDC in circulation, the bigger its yield-generating reserves will be.

Secondly, Circle is developing its own Arc blockchain, which supports tokenization. Circle already has a reputation as a compliance-friendly blockchain firm, making it an attractive choice for companies looking for tokenization solutions.

Tokenization could have tremendous potential. But, like many things related to the blockchain, it is early days, and there are no guarantees. However, if the hoped-for changes to financial infrastructure and legislation come through, companies like Circle and smart-contract cryptos could soar.

Emma Newbery has positions in Ethereum and Solana. The Motley Fool has positions in and recommends Bitcoin, Ethereum, and Solana. The Motley Fool has a disclosure policy.