Tokenizing Tomorrow: Bridging Real-World Assets with Blockchain and AI

Beyond digital assets solely tied to the blockchain, a new investing paradigm is allowing investors to gain exposure to AI as well as to fine art and other real-world assets via blockchain tokenization.

Bitcoin and Digital Assets

The total current market capitalization of the entire digital asset space (as of November 2023) is around $1.5 trillion USD. The vast majority of this market cap is composed of blockchain-based assets that are strictly on-chain and don’t represent any physical or real-world asset. Outside of fiat-back stablecoins, the main off-blockchain assets in the top 100 are tokenized gold projects from Tether and Paxos (currently #93 and #100, respectively).

While strictly on-chain digital assets — like bitcoin (BTC) and ether ETH) — are exciting in their own right, many are seeing value in creating investing opportunities that combine the security and authenticity of blockchain with real-world assets (RWAs) such as real estate, intellectual property (IP), commodities, bonds, and various other assets.

Blockchain-Verified Off-Chain Assets

With blockchain adoption continually increasing through both bull and bear markets, it is predicted that the blockchain space will have in excess of 100 million daily users by the end of the decade. As one of the biggest changes to ever affect the online space, not having exposure to this blockchain-based ecosystem could turn out to be costly.?

In addition to simplifying the transfer and ownership of certain assets, tokenization presents some additional benefits. One of them is the ability to fractionalize an investment in ways that can be much simpler, cheaper, and granular than traditional methods. For example, let’s say you need investors to build a luxury high-rise condo in Miami for $100 million with the goal of exiting for a healthy return on investment (ROI).

If you decided to tokenize this process, it would be relatively simple to create a million tokens (at $100 each) that would represent ownership of the property; you could even tokenize the property into 10 million pieces if you like. Once the property is sold, you could use the blockchain and smart contracts to automatically distribute profits based on the number of tokens they hold.

While you could also crowdsource investment in more traditional ways, you likely wouldn’t have thousands — or millions — of separate investors due to the cost, complexity, and other pain points. Tokenization enhances liquidity and lowers the barrier to entry for a variety of assets. A 2022 survey showed that more than 90% of institutional investors are interested in investing in tokenized assets. One report predicts that tokenized RWAs will be a $16 trillion industry by 2030.

Blockchain and AI Insights

The AI market cap on NASDAQ currently hovers around $3.1 trillion, with a recent high of around $5.5 trillion in July 2023. With the trimming of various positions due to geopolitical turmoil, there still seems to be latent demand for AI that could see the market cap surge once again. As a both nascent and burgeoning market, many forecast AI as a high-growth market.?

In contrast, the blockchain-based AI market currently hovers around $8 billion — equating to a valuation of less than 0.003% of its NASDAQ analog. Due to the aforementioned benefits of tokenization — and the delta between these two investing sectors — we see a great deal of growth potential for projects that merge AI and blockchain.

However, many experts mention that investors should exercise caution. Several prominent voices have compared the AI boom with the dot-com bubble. While the market may be overheated, it's worth mentioning that some of the companies that survived this earlier bubble are now some of the largest companies on the planet. On the other hand, some that went bust were nothing more than a website, a dream, and a large marketing budget. That said, AI tools are being integrated into products that millions of people already use everyday.

Beyond NFTs: Blockchain and Art Investment

The past 5 years (2018 – 2022) have seen a fine art average annual sales value of more than $63 billion. While a huge market, like real estate, it suffers from some liquidity and barrier-to-entry issues that can be ameliorated via tokenization. Some art investing projects purchase — and then tokenize — individual paintings from famous artists with the goal of reselling them after a certain waiting period. Once sold, any profits from your associated token allocation will be distributed to you. You can even sell your shares on a trading market prior to the painting’s sale if you wish. Other investments included tokenized art funds that hold a portfolio of fine art. This allows prospective investors to gain exposure to a tokenized basket of fine art.

In some cases, NFTs can complement real-world artwork, such as the recent release of Norman Rockwell limited edition prints, studies, and other art collectibles. This physical art is paired with NFTs that contain a digital version of the art and also authenticates the physical art piece. Digital-only art as non-fungible tokens (NFTs) will continue to remain volatile alongside the fungible token market with which it shares the blockchain. Fungible and non-fungible tokens that represent RWAs will continue to gain prominence amongst investors who want to diversify away from on-chain only assets — or more traditionally minded investors who want to dip their toes into the blockchain-based investing waters.

Navigating the complex and ever-changing world of digital assets can be a challenge, but staying informed is key. If you found value in these insights and wish to deepen your understanding of this evolving space, consider connecting with us on LinkedIn. Additionally, if you aren’t already, you can subscribe to our newsletter, filled with tailored digital asset insights. For more personalized guidance, reach out at [email protected]. Connecting with us helps you stay one step ahead in the world of digital assets.

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