Author: Jason Jiang, Ouke Cloud Chain Research Institute
Affected by the macro tightening environment and the thunderstorms of large institutions, the encryption market has experienced a trough in the past two years. With the stabilization of macroeconomic policies, good news about crypto-asset spot ETFs continues to spread, coupled with the inscription craze and the approaching halving cycle, the market's interest in crypto-assets continues to rise.
A new cycle seems to be coming. But apart from market recovery, what else can we expect in 2024? At the end of the year and the beginning of the new year, Ouke Cloud Chain Research Institute hopes to return to the essence of Web3 technology, not to talk about market conditions and supervision, but from the perspective of technology application to explore the "iPhone moment" that may belong to Web3 technology in the next cycle.
1. Tokenization is the driving force for mass adoption of Web3 technology
In early 1995, a new coffee shop opened at 12 St. Mark's Square in New York. This coffee shop was inconspicuous, but it caused a sensation at the time because it provided a service that many people had never heard of at the time - access to the Internet. At that time, the Internet was just a niche product, and those participating in it were new human beings who were looking forward to the new order brought by "cyberspace". It wasn't until more real-life applications emerged that the Internet became the carrier of everything in reality, including cafes, restaurants, libraries, schools, and more: the Internet became the most important infrastructure of this era.
Web3 today is like the Internet in 1995, sexy but niche. However, as more and more commercial organizations and governments choose to embrace innovation, the Web3 market also urgently needs more realistic applications and products to break the barriers between technology and users and truly achieve large-scale application. Observing various innovations, we believe that tokenization will become the driving force for the large-scale adoption of Web3 technology and is also the most anticipated keyword in 2024.
Based on the Carlota Perez framework, 21.co believes that crypto is transitioning from a frenzy to a synergy phase.
The basic logic of the Internet is to strengthen connections: connections between people, connections between people and things, and connections between things. As the next generation of Internet, Web3 technology should follow the same logic. However, in the past ten years or so, Web3, especially the encryption market, has always been relatively closed, and the narrative is limited to the chain. Although there are often hundreds or thousands of times of growth, after all, it is just a cycle within the encryption ecosystem and has no real connection with reality. It wasn’t until tokenization received renewed attention that the integration of Web3 into the real world began to experience unprecedented growth .
Tokenization brings not only innovation on the chain, but also changes on the chain. ——Tokenization changes the value transfer, settlement and storage methods of various assets in the real world , such as real estate, art or various financial instruments and products. Compared with other crypto innovations, tokenization can make blockchain and Web3 more real because its underlying assets are at least perceptible and understandable to users.
The tokenized products currently issued are basically supported by off-chain assets.
Another characteristic of tokenization is that it is more regulatory-friendly. It is difficult to regulate crypto assets because they are outside the real world and have no regulatory rules to refer to. However, tokenization is more closely connected with reality and can be regarded as an evolutionary form of asset digitization. As long as we grasp the real assets of tokenized products, we can find regulatory grip. Therefore, tokenization is more regulatory-friendly and easier to accept than other crypto innovations. In addition, banks and financial institutions currently involved in tokenization practices will also bring their capabilities and experience in the field of compliance to the field of tokenization.
In early November 2023, Hong Kong SFC issued a circular on tokenized securities.
" You should take this technology as seriously as you took the development of the Internet in the early 1990s," Blythe Masters, the former head of commodities trading at JPMorgan, told Bloomberg in 2015. This argument is timely now - more perceptible to users, more valuable to institutions, and more friendly to regulation. Tokenization has become an important driving force in accelerating the adoption of Web3 technology.
2. How is tokenization in 2024 different from 2023?
We are still a long way from full adoption of tokenization and Web3 technologies, but changes will continue to happen in 2024. Compared with 2023, Ouke Cloud Chain Research Institute believes that tokenization will show the following characteristics:
( 1) The blockchain and Web3 technologies that support tokenization will become more invisible on the back end, and innovation will be concentrated on more reality-oriented tokenized products . Blockchain technology will also be more closely integrated with existing information technology, accelerating the uploading of more real-world assets and data to the chain.
(2) More countries and regions will not only recognize the development potential of tokenization, but also accelerate the formulation of rules to adapt to tokenization innovation . Hong Kong, Thailand and Singapore have laid the foundation for tokenization practices, and their initiatives will serve as a reference for other countries and regions.
(3) Although tokenization projects native to the chain may be more dynamic, tokenization practices by traditional financial institutions will be more active in 2024 . Tokenization can bring benefits such as improving capital efficiency, saving operating costs, enhancing transparency, and meeting diverse needs in traditional financial markets, but many of these advantages are only theoretical. In order to innovate more steadily, we believe that financial institutions will continue to adopt a step-by-step strategy for tokenization practice in 2024, that is, first implement tokenization from part of the process of financial products, obtain some technical advantages, and then expand to the entire process . One-step tokenization is still unrealistic.
(4) Deposit tokenization and fund tokenization will usher in more prosperous development in 2024 . Deposit tokenization may be the asset closest to large-scale application at present. The attitude of US regulators has changed in a positive direction, and JP Morgan’s tokenized deposit plan has also received a green light. We look forward to more banks participating in 2024. In terms of tokenized funds, Harvest International launched Asia’s first tokenized fund for professional investors in November this year. According to people familiar with the matter, more Hong Kong funds are exploring the tokenization of public funds for retail investors: Hong Kong or Will become the leader in the tokenized fund market.
(5) Financial institutions will increasingly choose to practice tokenization on public chains. Unlike the tokenization of assets that mostly occurred in private or permissioned chains in 2017, financial institutions are increasingly exploring the tokenization of traditional financial instruments and products within a decentralized framework. On the one hand, this shows that public chain technology has developed rapidly in the past few years and has initially been able to support commercial applications. It also shows that traditional financial institutions have increasing confidence in the security and performance of public chain networks. This change is in stark contrast to a few years ago, but will continue in 2024.
Blockchain Selection of Tokenized Products Issued
There are many things worth paying attention to in 2024: Bitcoin halving, Ethereum Cancun upgrade, crypto asset spot ETFs, etc. They may bring the scale of encryption to another level and make the market value hit new highs; but tokenization innovation But we are even more excited, because it will not only bring more real assets into the digital space, but also allow Web3 technology to truly enter the real world, allowing the technology to play its value in real scenarios.
2024 may be the turning point for tokenization and Web3 technology. We are looking forward to the arrival of the "iPhone moment" belonging to Web3 technology.
