Tokenization is crypto's attempt to turn paperwork and creaky old databases into highly efficient software. Both Ethereum (ETH 0.40%) and XRP (XRP 1.40%) stand to gain quite a bit, assuming that tokenization continues to take off as many expect.
Here's why this trend could send the prices of these coins soaring during the coming years.
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This is a small market with very big ambitions
In a nutshell, asset tokenization means representing the ownership claims on traditional assets like stocks or bonds using tokens recorded on a blockchain. Those tokens can either be used solely for record keeping, or they can be used as tradeable contracts to make the underlying assets more readily transferable than they would be otherwise.
Per some estimates, there could be as much as $30 trillion in tokenized assets by 2030. More reasonable estimates, like from Boston Consulting Group, suggest a total closer to $16 trillion in tokenized assets in the same time frame.
But so far, the value actually sitting on public chains remains modest. As of March 2, there was about $25.9 billion in tokenized assets that can be traded, with Ethereum holding about $15.4 billion, or 59% of that total, and the XRP Ledger (XRPL) holding a far smaller share of $461 million.
CRYPTO: ETH
Key Data Points
So if the estimates described above are even remotely in the ballpark of being correct, there's a tremendous amount of growth in store, and the chains that are positioned to be the home for the influx of tokenized assets will be very likely to flourish. Here's why Ethereum and XRP are already in the right spots.
Why Ethereum looks stronger now, and why XRP could catch up
Ethereum is starting the race to capture tokenized asset inflows with scale on its side.
Aside from the tokenized assets already on its chain, it has about $164.6 billion in stablecoins, and that's key because stablecoins are the checkout lane for everything else in on-chain finance. It also has a deep decentralized finance (DeFi) ecosystem, with about $55 billion in total value locked (TVL) in DeFi applications. That means it can already support a basic workflow like using coins as collateral for borrowing large chunks of capital to make a purchase of an expensive tokenized asset, then selling that asset and repaying the loan down the line. But larger players might be hampered by the network's messy collection of third-party regulatory compliance solutions.
In contrast, XRP's pitch for capturing tokenized assets is less about the depth of its markets today, and more about how it has the streamlined compliance features that banks and asset managers need to actually lawfully conduct on-chain activity.
CRYPTO: XRP
Key Data Points
The coin's issuer, Ripple, is also hard at work to build out its compliance toolset even more to further boost its appeal to financial institutions. The catch is that compliance features don't automatically create demand, they only incentivize it by offering a lower-friction path than it would experience elsewhere. Nonetheless, transaction costs on XRP tend to be lower than those on Ethereum, which could prove to be an edge.
Looking forward, the biggest swing factor for the tokenized asset market is how regulation and standards will evolve. Currently, fragmented rules across jurisdictions hinder cross-border movement of tokenized assets, which makes the biggest forecasts about the market's size fairly speculative and somewhat hard to believe. If the trend toward tokenization accelerates, which both Ethereum and XRP are implicitly betting on, it will be because the efficiency benefits of tokenization lead to more widespread adoption, which will precipitate regulatory clarity where it's needed the most. And as of now, it's reasonable to expect things to pick up speed from here.
So when you're building a crypto portfolio, treat tokenization as a driver of higher coin prices, especially for leaders like Ethereum and XRP. If the trend accelerates through 2030 as predicted, Ethereum is probably the safer play because it already hosts most of the activity. But don't count XRP out either -- it's smaller today, but it's focused on the players with the most capital, and they tend to move slowly.
