Gartner: Blockchain-based tokenization is for more than NFTs and cryptocurrencies

Editor’s note: The following is a summary of a recent Gartner report on emerging technologies and featuring Digital Asset, produced by Gartner analysts Rajesh Kandaswamy, Balaji Abbabatulla, and Danielle Casey. You can access the full report below. 

Report overview

Tokenization is a key aspect of blockchain technology, along with distributed ledger and smart contacts, and all of these are now considered parts of the emergent Web3. From a market perspective, the significant investment activity in tokenization and blockchain indicates its growing importance and potential value. 

Early adoption will still be seen outside of the mainstream. The areas of new digital business assets that are expected to expand their use of tokenition are financial services, energy markets, retail, healthcare, luxury goods, travel, media, and others. Organizations’ primary focus for the next 18 months should be preparing their capabilities and offerings to exploit the benefits of tokenization, and to build capabilities, skills, and intellectual property while opportunistically growing revenue.

An early use case area for token technologies to create or represent assets is in financial services, including with bonds and other securities. Tokens are used to represent financial instruments—such as a security or a government bond—for a company to use to raise debt. The token might be programmed to take specific actions, such as specific coupon payments (interest payments) at predetermined levels and times. Examples include a project by Deutsche Börse to manage trades of digitized securities and the digital bonds issued by Six Digital Exchange. Both use technologies from R3 Corda and Digital Asset. Examples of vendors in the tokenization ecosystem including Dapper Labs, Digital Asset, Ethereum, Fireblocks, Hedera Hashgraph, Hyperledger Besu, Hyperledger Iroha, Infura, Palm NFT, R3 Corda, RIDDLE&CODE, and Stellar.

Key takeaways

  • Blockchain-based tokenization is maturing and increasing in use, and has the potential to manage digital business and other assets, beyond cryptocurrencies and NFTs. 

  • Beyond the ability to create and represent assets, tokenization offers features in fungibility, programmability, fractionalization, and composability. These additional capabilities open up new commercial possibilities in the digital economy. 

  • The significant investment activity in tokenization and blockchain-related technologies indicates the growing importance of tokenization and the potential value it holds for technology providers. 

  • Mechanisms that foster the creation and easy exchange of assets will generate more economic activity at better efficiencies. The need for better mechanisms to manage digital business assets will increase substantially. 

  • Since blockchain networks rely on distributed ledgers across nodes to store the data, data differences and duplication are reduced or avoided.

  • Opportunities for blockchain-based tokenization will continue to grow into new market areas. While the currently popular areas are non-fungible token (NFT) art, NFT collectibles, and cryptocurrencies, Gartner expects it to expand into new digital business asset markets. Tokenization offers a powerful mechanism to represent assets on the internet. While it is still in its infancy, it has significant potential, but growth won’t be automatic or smooth. The growth in the near future will be outside the mainstream. 

  • The primary focus now should be preparing organizational capabilities and offerings to exploit the benefits of tokenization, rather than establishing firm revenue goals. Tech providers and enterprises that want to leverage tokenization will have to work within the confines of today’s technologies and processes. In the initial years, there will be no silver bullet to embed tokenization technology in tech-provider products and services. Tokenization usage in the current business landscape will require other technologies, compromises, and accumulation of technology debt.

You can register with Gartner to download the full report here.