JPMorgan Report Shows Grim Truth About RWA Tokenization

According to a report from JPMorgan, the RWA tokenization sector is underperforming expectations. Its total market cap is $25 billion, which is roughly equivalent to US ETFs’ weekly inflows.

Furthermore, the vast majority of current investment comes from crypto-native firms. TradFi institutions aren’t joining the trend, and their interest may be diminishing already.

Is RWA Tokenization Going Bust?

RWA tokenization is often touted as one of the most promising market sectors in crypto, exhibiting strong performance while withstanding broader economic downturns.

Crypto VC firms are very interested, and major governments explore their applications. But what if this hype was overstated? A bold report from JPMorgan makes this very claim:

“The total tokenized asset base remains rather insignificant. This rather disappointing picture on tokenization reflects traditional investors not seeing a need for it thus far. There is also little evidence so far of banks or customers moving from traditional bank deposits to tokenized bank deposits on blockchains,” claimed Nikolaos Panigirtzoglou, a JPMorgan strategist.

JPMorgan’s researchers frequently survey sensitive areas in the crypto market. The firm has been heavily invested in RWA tokenization, so it’s logical that it would want to assess the market impact.

Unfortunately, JPMorgan’s conclusions are rather dour.

Crypto Invests Despite Dwindling Participation

To be blunt, most RWA tokenization investments come from the crypto industry. TradFi institutions have experimented with the market, but they seem to be losing interest.

Case in point, BlackRock’s BUIDL fund lost $0.6 billion in total assets from May to August.

The sector’s total market cap is $25 billion, $15 billion of which consists of tokenized private credit held by very few firms. As Eric Balchunas, a prominent ETF analyst, noted, the entire RWA tokenization market is roughly equivalent to US ETFs’ average weekly inflows:

“While I’m bullish on BTC/crypto ETFs (and stablecoins), I’m just not sold on full tokenization. ETFs are too badass, the value proposition is just too good. Tokenization has been a thing for a DECADE… and didn’t even lay a glove on ETFs. If Wall St believed that tokenized RWAs were the next big thing, we wouldn’t see record ETF launches year after year!” Eric Balchunas claimed.

Balchunas took this opportunity to dispute a few arguments that RWA tokenization has its best years ahead of it. In his view, it might be closer to the end.

If these claims are true, there’s a huge potential market impact. After all, the SEC is planning to bring the US capital markets onto the blockchain. Could this market data disrupt these plans?

To be fair, these assertions could be wrong or misleading. This report would be more impactful if other TradFi institutions corroborated JPMorgan’s statements on RWA tokenization. However, the crypto industry should be aware that institutional RWA investment may decline even further.