Ripple Explores Real-World Asset Tokenization with Financial Institutions
Ripple is actively engaging with financial institutions on real-world asset (RWA) tokenization, though significant challenges remain before a widespread transition to this model occurs.
James Wallis, head of RWA tokenization business development at Ripple, stated that the migration of trillions of dollars worth of assets on-chain will depend on institutions recognizing the value of emerging use cases.
The RWA market has reached approximately $12 billion, excluding stablecoins, which total around $170 billion.
Benefits of tokenization, such as improved efficiency and increased investor access, have not been fully validated. A report from the Financial Stability Board (FSB) indicates that these benefits may not be exclusive to tokenization and could involve trade-offs that diminish advantages. Existing fractionalization methods already enhance investor access, while atomic settlement may increase liquidity requirements for participants.
The FSB anticipates a hybrid approach combining traditional systems and blockchain technology for asset classes where the cost-benefit ratio of tokenization is most evident.
In April, Ripple announced plans to launch RLUSD, a USD-pegged stablecoin backed by US dollar deposits, short-term US Treasurys, and cash equivalents. Recently, Ripple disclosed the platforms where RLUSD will be available: Uphold, Bitstamp, Bitso, MoonPay, Independent Reserve, CoinMENA, and Bullish. This stablecoin is one of the few issued under a New York Trust Company Charter, with Ripple collaborating closely with regulators for its upcoming launch.
Blockworks: What insights have you gathered from institutions exploring tokenization?
Wallis: Proof points indicate a viable business case, particularly in collateral management efficiencies and reduced operating costs. Traditional institutions are increasingly launching on public blockchains, marking a significant shift.
Blockworks: Why are more institutions becoming comfortable with public blockchains?
Wallis: Nervousness previously existed due to transparency concerns associated with public chains. Institutions now recognize the ability to issue assets on these technologies in a controlled manner, gaining benefits like enhanced liquidity and market access.
Blockworks: What’s next for tokenized money market funds?
Wallis: Initial projects like those from Franklin Templeton and BlackRock have provided a foundation. Tokenizing commodities has been explored extensively, but tokenizing securities involves stricter regulations. The focus will shift to secondary markets in the coming years.
Blockworks: What do you think about projections for the tokenized RWA market?
Wallis: While optimistic, the success depends on clear use cases and benefits. Many new funds target crypto-friendly participants, influencing projections significantly based on how many traditional assets transition on-chain.
Blockworks: What concerns do institutions have regarding asset tokenization?
Wallis: Concerns primarily revolve around understanding and education rather than outright objections. Institutions prioritize compliance and risk management when selecting asset classes for tokenization.
Blockworks: What regulatory developments are you monitoring?
Wallis: Ripple is pursuing high-quality regulation through the New York DFS for the RLUSD stablecoin. Collaboration with regulators is essential for navigating the complexities of new technology and ensuring compliance.
This interview was edited for clarity and brevity.