The Institutional Adoption of Digital Assets - July 2023

Takeaways:?

• Institutions believe in the long-term value of crypto and digital assets.?
• Allocations to digital asset classes are poised to increase.?
• Institutional investors are also showing interest in tokenized assets.?
• Digital assets outperform the market.?
• Kreatorverse is building custom solutions in digital asset product infrastructure.?

What are digital assets??

Digital assets have evolved quickly over the past decade. They are any assets that exist in digital form. They could be crypto, securities, derivatives, data, intellectual property, software, media, brands, etc. We’ll explore how their institutional adoption paves the way for DeFi to disrupt TadeFi in the long haul. For the sake of simplicity, we’ll explore cryptocurrencies alone in this article.?

Cryptocurrencies use blockchain tech to secure transactions without central clearinghouses like banks, vendors, or third parties. Bitcoin, for instance, was the first cryptocurrency designed by a pseudonymous person or group named Satoshi Nakamoto. Since then, there have been increasing innovations, capital backing, and regulatory clarity.?

Down memory lane

• 2013: Bitcoin hits mainstream media.
• 2015: Financial products started trading with derivatives.?
• 2015 - 2016: Bitcoin recognized as important tech. VC invests in the crypto ecosystem.
• 2016: The halving. The rate at which new bitcoins are minted halves every four years.
• 2017: China increases regulations on exchanges.
• 2019: China seeks to replace fiat money with its digital currency.
• 2020: Several mainstream institutions began to integrate Bitcoin.

Leading payment company allows its users to buy BTC.

Midcap tech company adds $250M BTC to the balance sheet.

• 2021: Morgan Stanley was the first bank to allow investments in crypto for their high-net-worth clients.?

Goldman Sachs adjusted legal documents to allow clients to buy BTC.

• 2022: Despite the FTX collapse, which wiped out other crypto companies, a banner year for digital assets.?

Meaningful institutional implementations of blockchain tech by TradeFi organizations.

The launches of digital asset custody, tokenized deposits and settlement coins, numerous central bank digital currency (CBDC) pilots, settlement of digital bonds on public ledgers, and tokenization of private funds.

• 2023: Goldman Sachs is hiring for its digital assets team. This is surprising considering the mass furloughs in the company and the industry at large.?

TradeFi organizations continue to build out digital asset offerings for both retail and institutional clients with ‘more sensible’ valuations for potential investments.

The reports have spoken.?

• A 高盛 report states that 32% of family offices invest in digital assets. And here’s why:?

• An 安永 -Parthenon report specifies:

71% of respondents with AUM/AUAs <$1b indicated >1% of their portfolio to digital assets

While only 45% of institutions with >$500b in AUM.AUA indicated they allocated more than 1% of their portfolio.

35% of respondents indicated that they allocate 1-5% to digital assets or related products

60% indicated that 1% of their portfolio is allocated to digital assets or related products

Respondents with small AUMs/AUAs tended to allocate more of their portfolio to these products. For example, 45% of institutions with more than $500b in AUM indicated that they allocate more than 1% of their portfolio to such products.

• Further investigation into their sentiments, allocation projections, confidence levels, and interest in tokenization reveals

Both the quantitative and qualitative insights above suggest the large capital invested in digital assets and asset tokenization.?

• Top 10 Cryptocurrencies in June 2023: Which assets outperformed the bear market?according to Binance

• Additionally, watch how the top 5 ETFs performed this 2023 according to etf.com

Other up-and-coming use cases

星展银行 : A leading financial institution in Singapore developing a platform for tokenized assets on the chain. It allows investors to trade and invest in tokenized assets such as stocks, bonds, and real estate.? Nexo : A lending platform where users can borrow money against their cryptocurrency assets.? ICONOMI provides investors with a secure and transparent way to invest in digital assets.? Wealthfront : A bot advisor that provides investors with a low-cost and automated way to manage their investments on the chain.? Swissquote : A Swiss back that allows investors to trade and invest in tokenized assets like stocks, bonds, and real estate.?

Asset tokenization in a bear market

The markets have already weathered slow growth, regulatory tightening, and tighter bank credit. Does that mean they will be resilient? The jury’s still out. But despite this, institutional investors are interested in investing in tokenized private funds and securities like stocks and bonds the most, citing access to new asset types, with the most interest in public, private, and real-estate funds.

“The excitement from our side is … seeing how this technology can impact many different parts of the financial system and have a real commercial impact,” he added. “We’re at such an early stage in terms of its adoption, but as you look across the marketplace and you see the breadth of financial institutions building out their digital asset teams, their digital asset strategies, be that the sell side or the buy side, it’s just super exciting and I think there’s a real recognition there.”?

Matthew McDermott , Goldmann Sachs Digital Assets Chief in an interview with CNBC’s Crypto World

Kreatorverse for Digital Asset Infrastructure

Among the many blockchain and DLT projects we work on, our custom solutions for incumbents in asset management and asset administration are phenomenal. Two of our star clients:?

SafeBay is a capital markets protocol for Web3 treasuries and fiduciaries of on-chain capital. They help manage short-term obligations and extend the runway via credit products. Esketit is a lending protocol that allows lenders to earn passive income by investing in tokenized consumer loans.?

Building anything in asset tokenization is insanely hard. Our clients compel us to work much harder to deliver beyond par every time. We have deep backgrounds in financial services and capital markets. So, there is a depth of domain and tech knowledge you don’t want to miss.?

Distributed Ledger Technology (DLT) infrastructure is highly recommended to digitalize a wide range of activities in the capital market business operations with complete data security and privacy. They facilitate coordination between disparate parties with a single, immutable version of the truth. It is unlikely to have big-bang shifts from legacy systems, but there is a growing institutional uptake in the growing list of capital markets.

In this early adoption stage, new entrants have plenty of opportunities to gain market share and establish a competitive advantage. Besides, when the OG institutional investors have set their hearts, sorry, money on it, there’s not much else left to debate.

Let’s get after it.?

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