It’s now more than 17 years since the mining of Bitcoin’s genesis block, an event which signaled the arrival of blockchain technology. That innovation granted a powerful new feature to humanity – namely, the ability to move value almost instantly to anyone, anywhere in the world at low cost. The revolution unleashed by blockchain technology continues to transform international finance with the biggest developments arguably still to arrive.

As the giants of traditional finance and investment increasingly integrate on-chain finance into their day-to-day operations, Tokenized Real World Assets (RWAs) represent the next frontier of blockchain-powered innovation. Tokenizing real world assets refers to the process of issuing and managing a financial asset – which could be a traditional financial instrument, such as a stock, commodity or bond, or another form of financial investment, such as art or real estate – on a blockchain ledger instead of a centralised database. Each token represents partial ownership of the asset in question. Once tokenized, these programmable assets become units of wealth that can be divided into even smaller fractions.

Tokenized RWAs open up new ways for investors to trade a range of asset classes and create new investment markets. Compared to traditional asset management, which is constrained by banking hours and lengthy settlement periods, Tokenized RWAs offer significant advantages such as uninterrupted trading, real-time settlement, and the opportunity for fractional ownership. Given these benefits, the world’s leading financial institutions are  actively exploring the tokenization of traditional financial assets.

This is not an incremental upgrade to finance. It is the rebuilding of financial markets on blockchain rails. Indeed, BlackRock, the world’s largest institutional investor, has referred to the growing sector as the “next evolution in markets”; while McKinsey expects the market capitalization of tokenized assets (excluding stablecoins and cryptocurrencies) to reach around $2 trillion by 2030 – the same scale as a top ten global economy.

As a result, we expect that all liquid assets will be tokenized in the next 18 months. And all traditional asset classes will be tokenized in the next five years. The real significance of Tokenized RWAs is that ownership itself becomes digitally native, programmable, globally transferable, and available 24/7 on tokenized financial rails, marking the collapse of traditional settlement friction. Tokenized RWAs dismantle many of the barriers that have historically defined investing: geography, exclusivity, liquidity, and market hours.

In addition, fractional ownership of Tokenized RWAs makes it possible to diversify a portfolio by owning a partial stake in an expensive asset class that might otherwise be out of reach. Unlike many assets that remain illiquid until sold, owners of an RWA can turn part or all of it into cash they can use immediately.

Two compelling use cases: commodities and real estate

To illustrate these advantages, two of the most compelling use cases involve commodities and real estate. Gold is probably one of the clearest examples of a real-world asset that makes sense to tokenize because it already functions as a global, universally accepted store of value. Gold is often sought by investors to protect their wealth against inflation, currency devaluation, and geopolitical instability. Buying physical gold bars, however, is expensive, often costing thousands of dollars.

With tokenization, an investor can buy a tiny fraction of a gold bar, thereby benefiting from the protection gold offers without committing huge financial resources. Unlike traditional gold markets, tokenized gold moves at internet speed: globally accessible, tradable 24/7, and settled in seconds rather than days.  And it can be redeemed for physical gold at any time on an exchange, or in some cases, with the issuer.

Real estate is another asset class that lends itself to tokenization. Compared to other assets, real estate is illiquid and inefficient: sale prices fluctuate, most real estate transactions take weeks to close, and many intermediaries are required to complete them successfully. Tokenization streamlines the process, increases liquidity, and broadens access to real estate investment.

For example, instead of requiring $1 million to buy an entire commercial property, tokenization can divide that property into 1,000 tokens, each worth $1,000. Investors can then buy as many tokens as they want, gaining proportional ownership and returns from the property. These ownership rights are recorded on a blockchain, making them programmable and instantly transferable.

RWAs are rapidly becoming one of the defining use cases for blockchain-powered finance. As tokenization expands across asset classes, the line between traditional finance and digital assets will continue to blur. Traditional financial institutions, fintechs, and financial infrastructure providers are all now racing to build the tools needed for this new market.

They face a choice of building the capabilities themselves and acquiring the required licences in key jurisdictions, which could ultimately give them greater control but which would take a number of years; or of accessing the capabilities to manage Tokenized RWAs through an API integration with an experienced service provider - which would reduce the speed to market to a matter of months. Either route will secure access to what is poised to become a multi-trillion-dollar market over the next decade.

This article was originally posted on the Finextra community.