The Tristero report outlines a liquidity paradox forming in the financial sector driven by the tokenization of assets, such as credits and real estate.
Overview of Tokenization Market and Its Growth
According to the report, the tokenization market, now a key component of the crypto industry, has grown from $85 million in 2020 to $25 billion. This represents a 245-fold increase, highlighted by projects such as BlackRock’s tokenized Treasury bonds and Blockchain-integrated private loans from Figure Technologies. Tristero anticipates that trillions of dollars in assets may soon be represented on Blockchain.
Increased Fragility in RWA Products
Tristero indicates a second wave of asset tokenization involving derivative products known as 'RWA-squared'. Although these products may seem diversified, they actually connect all assets to a single fragile infrastructure. Oracle errors or stablecoin issues could simultaneously devalue tokens representing credit and real estate.
Need for Improved Infrastructure and Standards
To mitigate system fragility, the report suggests implementing stronger oracle structures, stricter collateral standards, and enhanced compliance mechanisms.
The concerns raised by the research echo the fragility seen before the 2008 global financial crisis. The faster and more flexible tokenization market could lead to similar crisis phenomena.
