Tokenization has become one of crypto’s favorite buzzwords, but Grayscale head of research Zach Pandl said investors should think of it less as a single trade and more as a long roadmap with different winners at different stages.
Speaking at the EthCC conference in Cannes, France, Pandl said the trend is still in its infancy. Tokenized assets – the process of using blockchain rails to settle, transfer and record ownership of all kinds of financial assets such as bonds, funds and stocks – is growing rapidly. But currently at $27 billion, it still represents about 0.01%, a tiny fraction, of global capital markets. It is expected to swell to nearly $19 trillion by 2033, according to BCG and Ripple.
Big banks and asset managers already understand the opportunity. “The two things that institutions are paying attention to are stablecoins and tokenization,” Pandl said. But they’re still trying to figure out where to allocate capital to actually take advantage of these innovations.
From here, Pandl expects tokenization to unfold in phases, with different types of networks and models capturing value at each stage.
The first winners, he said, may be projects that look more like traditional financing, not less.
“In the early stages of the tokenization process, you’re going to see things that are successful that are more like how the financial system works today,” he said.
This means institution-centric, approved systems that solve practical problems like privacy, identity and control.
Pandl pointed to Canton Network (CC), backed by Wall Street giants like DRW, TradeWeb, Goldman Sachs and Nasdaq, as a potential winner in this early phase of tokenization.
He said it’s “a perfectly reasonable investment” for investors who want shorter-term traction, although Canton’s approach represents only “a slightly different, slightly upgraded version” of today’s financial system.
Second phase
The second phase of tokenization could be a hybrid model where we have both institutionally owned blockchains and a global shared state where these networks are connected and talk to each other. An example of that is Avalanche (AVAX), with hundreds of sovereign, corporate-owned chains (called subnets) live but connected to a primary layer-1 network.
Ethereum’s ether (ETH) is, in his opinion, the larger but slower effort. Pandl said he believes the market will eventually move toward “global decentralized finance,” but added that “the technology isn’t quite ready” and the institutions aren’t ready either.
This makes ETH the more ambitious investment for those willing to wait for the long-term shift away from financial intermediaries.
There are also pick-and-shovel plays. Pandl highlighted chain-agnostic service providers such as Chainlink as another way to gain exposure, saying they can be “even more compelling” than some blockchains.
Read more: How tokenized assets could become a $400 billion market by 2026
