Tokenization has become one of cryptocurrency’s favorite buzzwords, but Grayscale head of research Zach Pandl said investors should think of it less as a one-time deal and more as a long roadmap with different winners at different stages.
Speaking at the EthCC conference in Cannes, France, Pandl said the trend is still in its infancy. Tokenized assets (the process of using blockchain rails to settle, transfer and record ownership of all types of financial assets such as bonds, funds and stocks) are growing rapidly. However, currently at $27 billion, it still represents about 0.01%, a small fraction, of global capital markets. That figure is projected to rise to about $19 trillion by 2033, according to BCG and Ripple.
Big banks and asset managers already understand the opportunity. “The two things that institutions are aware of are stablecoins and tokenization,” Pandl said. But they’re still trying to figure out where to allocate capital to really benefit from these innovations.
From here, Pandl expects tokenization to develop in phases, with different types of networks and models capturing value at each stage.
The first winners, he said, may be projects that look more like traditional finance, not less.
“In the early stages of the tokenization process, you will see things that are successful that are more like how the financial system works today,” he said.
That means authoritative, institution-centered systems that solve practical issues like privacy, identity, and control.
Pandl pointed to Canton Network (CC), backed by Wall Street giants such as DRW, TradeWeb, Goldman Sachs, and Nasdaq, as a potential winner in this early phase of tokenization.
He said it’s “a perfectly reasonable investment” for investors who want short-term traction, even if Canton’s approach represents only “a slightly different and slightly improved version” of the current financial system.
The second phase
The second phase of tokenization could be a hybrid model where we have institutionally owned blockchains and a shared global state, with those networks interconnected and communicating with each other. An example of this is Avalanche (AVAX), with hundreds of corporate-owned sovereign chains (called subnets) active but connected to a primary Layer 1 network.
Ethereum ether (ETH), in his opinion, is the bigger but slower bet. Pandl said he believes the market will eventually move toward “decentralized global finance,” but added that “the technology is not completely ready” and the institutions are not ready either.
That makes ETH the most ambitious investment for those willing to wait for it to move away from financial intermediaries in the longer term.
There are also pick and shovel works. Pandl highlighted independent chain service providers, such as Chainlink, as another way to gain exposure, saying they may be “even more attractive” than some blockchains.
Read more: How tokenized assets could become a $400 billion market by 2026
