Standard Chartered sets eyes on non-stablecoin tokenization, amid the stablecoin bubble

Several banks and institutions are planning on getting into the newly regulated stablecoin market. However,  Standard Chartered (STAN) is looking into the $23 billion non-stablecoin RWAs market. The investment bank  expects that number to grow significantly.

According to STAN, although stablecoins dominate the tokenization of real-world assets (RWA) the bank sees signs of a broader shift underway. However, the non-stablecoin RWAs hold only 10% of the size of the stablecoin market. 

Private equity and liquid off-chain commodities is where non-stablecoin tokenization will grow – STAN

In a research report, the bank said that the growth is assured because of the improved regulatory clarity and the focus shifts to assets that benefit more meaningfully from being on-chain.

“To unlock growth potential, we believe tokenization efforts need to focus on on-chain assets that are cheaper and/or more liquid than their off-chain equivalents, with shorter settlement times, or that solve an on-chain need,” wrote Geoff Kendrick, head of digital assets research at Standard Chartered.

The bank said tokenized private credit has shown promise by offering faster payment and lower costs. It also said that efforts to tokenize assets that are already liquid, like gold or US stocks, have not gone very far because they don’t offer clear on-chain benefits.

The Asia-focused lender said it thinks that private equity and liquid off-chain commodities will be the next places where non-stablecoin tokenization will grow.

Alan Konevsky, executive vice president of TZero, said that tokenizing RWAs, especially those based on real estate or collectibles, is not yet something that can be done fully automatically.

He said, “Financial instruments, arguably in particular if it’s also tokenized, can be fully automated.”  He also said that tokenizing physical assets needs the help of traditional market participants.

Tokenization is one of the main uses of blockchain technology, and it is attracting attention and investment from the TradFi world. On the other hand, stablecoins are popular for transferring money internationally.

Some studies show that the number of RWAs has grown by a huge 260% this year. However, some business leaders have questioned the stated market size, saying that the sector is still too new and small.

However, BlackRock, JPMorgan, and Goldman Sachs are already testing tokenized funds. In addition, Governments (like Singapore and Hong Kong) are drafting clear RWA-friendly rules. DeFi is also integrating RWAs to offer stable, real-world yields.

Boston Consulting Group (BCG) estimates RWA tokenization will become a $18.9 trillion market by 2033.

This would mean an average 53% compound annual growth rate (CAGR), taking the middle ground between the report’s conservative scenario of $12 trillion in tokenized assets in the next eight years and a more optimistic $23.4 trillion projection.

STAN says that  (KYC) rules that aren’t always clear remain a barrier. 

The investment bank said that some places, like Singapore, Switzerland, the EU, and Jersey, have made progress on regulations. However, knowing your customer (KYC) rules that aren’t always clear remains a barrier. The research says that the chance is to focus should be on assets where tokenization really adds value.

The main problem is the lack of consistency in Know Your Customer (KYC) standards across different jurisdictions. This means that when a business operates in multiple markets, it has to deal with different rules and documentation requirements.

Singapore and Switzerland are looking into the possibilities of tokenization and are focused on assets where tokenization can add value. On the other hand, the EU is working hard to strengthen its anti-money laundering framework, which includes making a new Anti-Money Laundering Authority (AMLA).

Jersey is looking into the idea of a shared “Know Your Customer” tool to make the process of verifying people’s identities easier.