The Avalanche Foundation is allocating up to $50 million to purchase tokenized assets created on its layer-1 blockchain, the company exclusively told TechCrunch.
The initiative, Avalanche Vista, aims to highlight the value of tokenization in different sectors like equity, credit, real estate and commodities.
Tokenization is the process of creating a digital representation of a real-world asset (RWA) on a blockchain. “It creates a faster, more efficient way for companies to issue assets, individuals to own them, and everyone to transfer value,” John Wu, president of Ava Labs, the firm that created Avalanche, told TechCrunch.
This isn’t the firm’s first rodeo in the asset tokenization space. In September, KKR, one of the biggest investment management firms in the U.S., tokenized a part of its private equity fund on Avalanche’s blockchain through digital assets securities firm Securitize.
“Our mission is to tokenize the world’s assets,” Wu said. “Vista is our next show of commitment to do that. It’s not just dollars involved, but commitment to help web2 players work with us and explain tokenization.”
Tokenization can provide a number of different benefits, but Wu said the focus is to provide operational efficiency, accessibility to new users and improved liquidity.
Unlike traditional financial rails, blockchain settlements can be done instantly, and investors can see where assets are stored on-chain because of its transparent nature.
“People are seeing that this concept of instant settlement doesn’t really exist in the real world,” Wu said. “Clearing in a traditional system takes a couple of days, and that’s trillions and billions locked up for a period of time. That can be done in a more efficient manner [on the blockchain] instantly.”
Blockchains can already provide operational efficiency by streamlining, automating workflows and removing intermediaries. Accessibility is still a work in progress, with initiatives on the rise like the KKR tokenization, bringing highly regulated entities into the space to allow for new investments, Wu said.
But the reality is, the hardest part of tokenization right now is liquidity, Wu said. “You have to prove the efficiency and accessibility at scale before liquidity happens.”
From the many deals Ava Labs has explored with traditional players, “the weakest link in that tripod was the liquidity aspect,” Wu said. So the company decided to invest $50 million, in line with what it sees in the pipeline and how much is needed to improve liquidity, he added.
Today, the most common tokenized asset types are equities and real estate, according to a recent Digital Asset Research report. Of the 41 centralized finance RWA organizations highlighted in the report, 26 have their own tokenized asset marketplaces and 30 support the fractionalization of RWA.
Wu sees tokenization of assets on the blockchain as one of the most impactful innovations of the next decade, and he is not alone in thinking that way.
Larry Fink, CEO of Blackrock, said in March, that “the next generation for markets, the next generation for securities, will be tokenization of securities.” Blackrock had $8.5 trillion in assets under management as of 2022, and while all of that won’t be tokenized, allocating even just 0.1% of that amount for tokenization would make up a whopping $850 million.
Last year, Tyrone Lobban, head of blockchain at JPMorgan’s Onyx, last year shared the bank’s plan to implement institutional-grade DeFi, saying he believes there’s significant value for tokenization of assets waiting on the sidelines.
“Over time, we think [of] tokenizing U.S. Treasurys or money market fund shares, for example, means these could all potentially be used as collateral in DeFi pools,” Lobban said. “The overall goal is to bring these trillions of dollars of assets into DeFi, so that we can use these new mechanisms for trading, borrowing [and] lending, but with the scale of institutional assets.”
There’s also potential for tokenization of non-financial assets to grow, Wu said, noting that loyalty reward points on blockchains are becoming popular. In April, Ava Labs partnered with Korean data management and marketing platform SK Planet to help it expand customer and merchant rewards, among other things, on Avalanche’s blockchain.
Going forward, there’s a “long pipeline of deals” with partners in the works to alleviate tokenization liquidity over the next 12 to 18 months, Wu said. “Tokenization is going to be adopted and now is the right time to do this.”