Digital assets have become mainstream. As institutional adoption increasing by the day, we look at how digital assets are helping to transform the financial landscape. We also look at the collaboration necessary for digital assets to get to the level of full maturity and work well with traditional assets.
A growing interest in Digital Assets
Crypto assets value at a total of $1.6 trillion. The total value locked in DeFi has increased to $242 billion from $19 billion in 2021. This demonstrates that many new blockchain projects have come up alongside Bitcoin and Ethereum.
Besides, there has been an increased demand for crypto assets from traditional institutional circles. While startups who offer one solution or the other in crypto have raised millions in VC-backed funding.
Across the world, more financial institutions have been working to expand their offerings. They are making attempts to include digital assets in their investments. They have recognized that they can no longer adopt a “wait and see” approach. While they plan, they are is still doing some forms of justification with regards to the benefits that digital assets offer.
Furthermore, they look for enough risk management that is synonymous with mature institutions. Investors on their part, are looking for digital asset infrastructure that is like what traditional assets offer.
Factors driving the demand for digital assets
Increased awareness: In 2021, the market capitalization of crypto was above $2 trillion. This means that within 10 years of existence, the capitalization of cryptocurrencies had reached 20% of that of Gold. Gold and Silver prices are truth gauges that measure the state of the resident fiat system. This also means that there is still great potential for growth.
Potential of Tokenization: With tokenization, an underlying asset is converte into its digital representation. This acts as a proxy. So far, a wide range of assets has been tokenize. These include real estate, commodities such as timber, and artwork. This makes it easier to address important issues about ownership such as custody, cash, and liquidity.
Regulation is evolving: Regulators are addressing the loopholes and put in place a framework that promotes consistency for digital assets. In 2020, the EU moved to legislate on a framework for digital assets. The regulatory board is billed to begin in 2024.
Integrating Digital Assets into the Traditional Ecosystem
As digital assets become increasingly popular, institutions require infrastructure to provide stability and safety. Investors need reassurance on their hard-earned funds. As a result, they expect the level of service that exists in the traditional space. They need stable and reliable servicing of the asset in the different stages from issuance to payments.
These requirements can be grouped into three:
Trust and soundness: The potential of the digital space necessitates institutions to start looking for the same level of risk management and standards they are accustomed to.
Institutional readiness: Institutions need scalability and transparency in various levels. This would help them to take care of the risks and volatility common with digital assets.
Ease of use: Institutions require consolidated service and support in order to expand the use case of digital assets. Since digital assets are closely linked to the markets, there is need for collaboration with providers. In addition, collaboration would help to faster bring digital assets to maturity. When technology developers and financial infrastructure providers collaborate, it would result in a bigger pie for all involved. The end result would be more effective.
The digital assets industry has emerged over the past couple of years and brought synergy into finance. The confidence in this class of assets would lead to the widespread adoption of blockchain technology. This would enable investors to take advantage of the opportunities and address long-standing financial issues.