Citigroup, one of the world’s largest investment banks, has expressed its confidence in blockchain-based tokenization of real-world assets as the next “killer use case” in the crypto industry. According to the bank’s report titled “Money, Tokens and Games” released in March, the market for tokenized digital securities and distributed ledger technology (DLT)-based trade finance volumes could reach between $4 trillion to $5 trillion by 2030. This represents an 80-fold increase from the current value of real-world assets locked on blockchains.

Citigroup’s analysts expect that up to $5 trillion of tokenized digital securities will be in the form of debt, real estate, private equity, and venture capital. Private equity and venture capital funds are likely to become the most tokenized asset class, capturing 10% of its total addressable market, with real estate coming in next at 7.5%. Private equity markets are expected to see faster adoption rates due to their favorable liquidity, transparency, and fractionalization properties.

Blockchain-based tokenization total addressable market by asset class. Source: Citi

Citigroup believes that blockchain tokenization is a superior solution to legacy financial infrastructure because it offers more investment opportunities in private markets and is technologically superior. Traditional financial assets are sub-optimal, limited by traditional systems and processes, while blockchain tokenization provides an entirely new tech stack that enables all stakeholders to perform activities on the same shared infrastructure. This eliminates expensive reconciliation, prevents settlement failures, and makes operations more efficient.

If Citi’s bullish estimates are reached by 2030, tokenized assets would still only represent a small share of the total addressable markets. Source: Citi

However, Citigroup acknowledges the drawbacks of blockchain tokenization, including the lack of legal and regulatory frameworks, infrastructure-building challenges, and obtaining widely followed interoperability standards. Some industry players remain skeptical of blockchain technology, particularly after the Australian Securities Exchange’s recent failure of its $165 million DLT project in November.

Despite these challenges, Citigroup remains confident that the ecosystem will mature as the technology develops. The bank envisions a “digitally native financial asset infrastructure, globally accessible, operating 24x7x365 and optimized with smart contract and DLT-enabled automation capabilities, which enable use cases impractical with traditional infrastructure.”