Ripple, an enterprise blockchain and crypto solutions provider, is allocating $10 million to tokenized Treasuries with Open Eden after also partnering with Archax, the UK-regulated digital asset exchange, broker and custodian, to tokenize real-world assets (RWAs).
On August 1, Ripple announced that it would allocate $10 million to tokenized U.S. Treasury bonds (TBILL) on the OpenEden tokenization platform. This is part of a larger fund that Ripple will allocate to tokenized Treasury bonds provided by a number of issuers.
At the same time, OpenEden will bring tokenized U.S. Treasuries to Ripple’s XRP (XRPL) ledger and its users for the first time. OpenEden co-founder Jeremy Ng said in a statement that buyers will be able to mint its TBILL tokens via stablecoins, including Ripple USD when it launches this year.
The tokenized Treasury market has been growing over the past two years, with traditional asset manager BlackRock launching its first tokenized fund in March this year in partnership with digital asset securities firm Securitize. The BlackRock USD Institutional Digital Liquidity Fund (BUIDL) raised more than $500 million in a record four months.
Markus Infanger, senior vice president of RippleX, told Markets Media that the market has not fully grasped the degree of validation that BlackRock brings to tokenization as the world’s largest asset manager. RippleX is Ripple’s business unit that supports developer partnerships and growth around the XRP ledger.
“The launch of Bitcoin spot ETFs has been more hyped, but in my opinion, BUIDL is a much bigger deal because it marks the beginning of blockchain being used for utility purposes in financial markets at scale,” he added. “BUIDL opens the floodgates, and Ripple has been doing that since day one.”
Cryptocurrency exchange Coinbase said in its The State of Cryptocurrencies A report released in June this year said the tokenized asset market is expected to reach $16 trillion by 2030.
“Government securities are driving the tokenization of real-world assets and are the only asset class in which leading U.S. brands, led by BlackRock and Franklin Templeton, are tokenizing,” Coinbase said. “Recent high interest rates have driven demand for safe, high-yielding on-chain Treasuries, driving the value of tokenized U.S. Treasury products up more than 1,000% from January 2023 to $1.29 billion as of May 31, 2024.”
OpenEden said it recently surpassed $75 million in total value locked for its tokenized Treasuries and that it was also the first and only tokenized Treasury product to receive an A-grade investment grade rating from Moody’s. Infanger added that Ripple is working with OpenEden because it is one of the leading tokenization platforms in terms of volume.
“They have a strong background in understanding traditional finance and decentralized finance,” he added. “We see Ripple as a champion in terms of bridging the gap between TradFi and DeFi, which is what we’ve been doing since day one.”
Financial infrastructure
Ripple is well-known for facilitating cross-border payments on its blockchain network in both fiat and cryptocurrencies. However, Infanger said the company was launched to enable blockchain technology to work with the traditional financial system so that it can be transformed into a more productive infrastructure.
There are many other blockchains out there, but Infanger argued that Ripple’s XRPL stands out as one of the oldest protocols because it was created in 2012 and has been battle-tested in the real world.
“XRPL has a proven track record of consistently and securely facilitating transactions in three to five seconds “Both bull and bear markets saw over 2.8 billion transactions,” he said.
Ripple said XRPL hosts over 1,000 projects, processed over 2.8 billion transactions without a single failure or security breach since 2012, and supports over five million active wallets with a network of over 120 validators. Infanger added that XRPL has a native decentralized exchange and tokenization built into the protocol, meaning it is more secure than using smart contracts.
“We have a roadmap for Ripple to work with the financial community on what we call institutional-grade DeFi,” he added.
For example, in June this year, Ripple and Archax, the first digital asset exchange, broker and custodian regulated by the UK’s Financial Conduct Authority, announced an expansion of their existing collaboration to integrate tokenized real-world assets on XRPL.
Tipping point
Archax has tokenized real-world assets including stocks, debt instruments and money market funds.
Graham Rodford, Archax’s chief executive, said in a statement in June: “We have reached the tipping point towards the widespread adoption of digital assets for real-world use cases. Financial institutions have now understood this and we are excited to play our part in helping them embrace this technology by moving their assets onto XRPL.”
Infanger agreed that Ripple is having more discussions with financial institutions that want to explore production use cases for tokenization, particularly those that use its custody product. Ripple acquired Swiss digital asset custodian Metaco in 2023.
HSBC announced last year that it would launch a digital asset custody service for institutional clients focused on tokenized securities with Metaco.
“What I’m most excited about this year is the major difference in the conversation with large financial institutions that want to engage in tokenization of real-world assets,” Infanger said.
For example, a large asset manager wants to launch a tokenized money market fund to improve collateral mobility and credit risk management. Another institution is working with an insurer to issue cybersecurity insurance that can be distributed to a broader range of investors if tokenized.
However, Infanger acknowledged that greater regulatory clarity is needed to integrate real-world assets, such as real estate, into blockchain. He also stressed the importance of interoperability between blockchains so that they work seamlessly with each other, as well as interoperability with traditional financial market infrastructures.
“There has been a lot of hype around the tokenization of real-world assets,” Infanger said. “However, I think it’s not being hyped enough and we’re still in the early stages.”
Consulting firm McKinsey & Co estimated in June that the total tokenized market capitalization could reach around $2 trillion by 2030 (excluding cryptocurrencies like bitcoin and stablecoins like Tether), driven by the adoption of mutual funds, bonds and exchange-traded notes (ETNs), loans and securitization, and hedge funds.
“In a bullish scenario, this value could double to around $4 trillion, but we are less optimistic than previously published estimates as we approach the middle of the decade,” McKinsey added.