From Deutsche Bank To Nori, Blockchain Found Its Killer Use Case — Tokenization

Against all odds, despite a market downturn, the FTX scandal, regulatory freezes, and more, there’s a renewed sense of optimism in the blockchain sector due, in large part, to the rise of tokenized traditional financial assets.

It helps significantly that major web2 organizations are getting in on the action. From financial institutions and corporate borrowers jumping into the world of bond tokenization to asset managers following suit by tokenizing their funds, all seem to share the goal of extending distribution to the masses, reducing the barriers to entry for new investors, and drumming up new sources of investment dollars.

A new age of investing is upon us, largely thanks to traditional businesses waking up to the power of asset tokenization. This technology is by no means new. Even in 2019, BNY Mellon was pitting the opening of illiquid assets to “dramatically change the dynamic” for investors — but finally, it seems, tokenization’s time has come.

The Market Potential & Benefits

Analysts from Citibank estimate that as much as $5 trillion in tokenized securities could be issued by 2030. And this figure looks pretty conservative. Broadridge, a US-based fintech infrastructure company, already boasts over $1 trillion in tokenized repurchase agreements on its Distributed Ledger Repo (DLR) platform. And in August, the total value of tokenized real-world assets reached a record $3.1 billion.

We’re already seeing a cascade of financial institutions chomping at the bit to get involved. Indeed, Citi itself, along with Deutsche Bank, is launching “deposit tokens” to deliver cash for security tokens in real-time, solving the slow and outdated payment infrastructure in the U.S. and Germany, respectively. Traditional institutions, traders, investors, and more are starting to believe in the initial premise of the blockchain, that it can provide more efficient rails for raising capital and making peer-to-peer transactions.

Beyond banking, there are a wide array of potential benefits for businesses and brands to implement loyalty programs. Utilizing the benefits of NFTs, these new campaigns can offer more diverse benefits, such as exclusive access to discounts, merchandise and events, easily redeemable from a user’s mobile device. For example, Lufthansa’s “Uptrip” app presents one of the more ambitious and unique flights into the land of tokenization. The European airline group collaborated with Polygon
MATIC
to create an NFT
NFT
loyalty program that takes previously mundane flight rewards to exciting new places.

The app empowers their passengers to turn their boarding passes into NFTs, unlocking exciting experiences and rewards — gamifying the travel process and creating a new layer of engagement. Flight upgrades, exclusive lounge access, reward miles, and frequent flyer badges give a glimpse into what can be achieved with this Web3 app.

Utilizing tokenization, any business can implement similar loyalty rewards campaigns with a minimum of effort and no previous knowledge of Web3. Tara Fung, cofounder and CEO of Co:Create, a company who’s APIs enable all brands to build gamified, self-owned reward experiences, added, “Tokenization represents the future of customer acquisition and retention for consumer-facing businesses. However, they need the tools that allow them to focus on the story they are trying to tell and the experience they want to provide to their customers, without having to build out all of the underlying infrastructure from scratch.”

It’s not only traditional businesses and Web2 stalwarts waking up to the benefits of tokenized assets; it’s governments, too. Nations are drawing up frameworks to support implementation, encouraging exploration and research, and trying to better understand how capital can be safely raised while investors remain protected. Economic growth seems to be a surefire byproduct of the growth of tokenization, and the blockchain will take the plaudits, potentially resulting in a 180-degree change of opinion for stubborn skeptics.

McKinsey, arguably the biggest management consultancy in the world, also feels very positively about the impact of tokenization and the recent increase in adoption from established industries. A recent report claims that tokenization will result in improved capital efficiency, democratization of access for investors, operational cost savings, enhanced compliance, audibility, transparency, and cheaper and more nimble infrastructure. We should also consider how this could benefit other sectors, like charity and crowdfunding, startups and entrepreneurship, and high-startup-cost industries like renewable energy, construction, and utilities. It’s not unrealistic to consider that traditional businesses embracing tokenization could eventually reduce your monthly bills.

Normalizing Tokenization Through Carbon Credits

Where we were five years ago, where we are now, and where we will be in five years are simply worlds apart. Society is still not ready to buy and sell vehicles, homes, and other major assets on the blockchain, but they will be one day, and it will feel very normal. For now, it’s crucial to find the low-hanging fruit and use the blockchain to provide solutions, such is the case with carbon credits, for example.

Carbon credits are fragmented, difficult to verify, and complicated to price, making them expensive and frustrating. The blockchain can solve that while making carbon markets an even more powerful tool for reaching climate goals, net-zero emissions, and raising capital for climate-action projects. Tokenizing carbon offsets as NFTs will help drive faster times to market, innovative certification methods, and more liquidity and diversification, adding value for suppliers and buyers.

While carbon credits are only around 25 years old, they’re already massively in need of an overhaul, and most are willing to accept that it will take blockchain technology to solve their inherent flaws. This is one key area that looks ripe for tokenized change.

A great example of this tokenization is Nori. Nori is a platform that creates a massive marketplace for carbon removal, starting with regenerative agriculture projects that store carbon in the soil, we can repair our climate and fund a better future. In the realm of sustainable investing, Nori’s Marketplace pioneers a transformative approach to carbon removal. When you purchase carbon removal through Nori, you’re not just offsetting emissions; you’re actively supporting regenerative farmers committed to sequestering carbon dioxide for at least ten years, with re-verification every three years.

The innovative Nori Carbon Removal Certificate accompanying each purchase provides transparency, showcasing the exact amount of carbon removal funded and the specific location and timing of the environmental impact. This tokenized process not only empowers individuals to make a tangible difference but also aligns with the increasing demand for transparency in sustainable investments, turning environmental commitments into actionable and shareable contributions.

In a world where sustainability is paramount, Nori’s tokenized carbon removal emerges as a pioneering solution, allowing investors to actively participate in the fight against climate change. Beyond offsetting carbon footprints, this approach provides a clear and verifiable record of environmental impact, offering a model for how tokenization can drive meaningful change in the pursuit of a greener, more sustainable future.

Challenges Lay Ahead

We’ve looked at several potential use cases, but implementing them all will not be plain sailing. Regulations, a lack of consistency between government frameworks, and skepticism can all prove significant hurdles.

Nevertheless, the industry could establish its credibility and reputation on the world stage by driving a new wave of institutional investment through tokenization.

The north star here is that the potential of tokenization is boundless; it just takes the right ideas, practices, approaches, and talent to allow it to transform the financial world into something more inclusive, democratic, and efficient for all.