The benefits of tokenization are simple, the process brings operational efficiencies and improved liquidity and accessibility, Bernstein said in a research report on Tuesday.

Tokenization is the process by which real-world assets are converted into blockchain-based tokens.

Bernstein estimates that the size of the tokenization opportunity could be as much as $5 trillion over the next five years, led by stablecoins and central bank digital currencies (CBDC), private market funds, securities and real estate.

Currency tokenization, via stablecoins and central bank digital currencies, will see application in on-chain deposits and payments, the report said, with about 2% of global money supply to be tokenized over the next five years, which is about $3 trillion, the report added.

“Over the next five years, we expect a swell in the stablecoins and CBDC tokens in circulation, led by China’s CBDC program,” analysts led by Gautam Chhugani wrote. “Stablecoins and CBDC tokens, coupled with yield farming in decentralized markets, will compete with bank deposits as an investment or saving instrument,” the analysts wrote.

Still, the broker notes current regulatory uncertainty, and says that “tokenization using blockchain can only succeed when policy-makers appreciate the benefits of blockchains and how crypto tokens are an indispensable part of blockchain operations.”

“How policy-makers regulate blockchain-based businesses will determine how they view tokenization of real-world assets,” the note said, adding that “regulations may blunt the advantages of tokenization."

CBDC Tokenization Stablecoin

Will Canny

Will Canny is an experienced market reporter with a demonstrated history of working in the financial services industry. He's now covering the crypto beat as a finance reporter at CoinDesk. He owns more than $1,000 of SOL.