Tether, the issuer of the largest stablecoin, has become the latest one to join the tokenization mania by unveiling its own platform called Hadron.
As a new asset tokenization platform for digital and real-world assets (RWA), Hadron allows users to tokenize all kinds of assets, ranging from bonds, stocks, and funds to real estate, art, fiat-backed, and commodity-backed stablecoins, and loyalty points. In the future, it may also offer tokenization capabilities for crypto-collateralized tokens.
The platform offers a full suite of tools to help with the issuing and management of the complete life cycle of digital tokenized assets. With features like modularity, reliability, and enhanced security, Tether is offering a holistic solution to the rising tokenization demands.
The Tether-linked, as per the company’s official statement, abides by the Know Your Customer (KYC) and anti-money laundering (AML) guidelines along with other regulatory requirements. Besides KYC and AML, the platform’s compliance tools also include secondary market (blockchain & CEXs) monitoring, Know-Your-Transaction, and risk management.
“Traditional finance institutions have always pushed for closed ecosystems that are opaque to citizens,” said Tether chief executive Paolo Ardoino in the statement. He further stated that by making use of the company’s technology, they’re “making asset tokenization easier, secure, and scalable.”
With Hadron, Tether aims to facilitate the asset tokenization process for both individuals and institutional investors. While the platform is already providing its services to several institutions in its beta phase, they are even in discussions about working with several developing nation-states.
“The value of tokenized assets is expected to reach ~$10.9 Trillion by 2030. We are remaking capital markets technology with a focus on simplicity, inclusivity, and fair value creation. Very proud of all teams involved for building this true masterpiece!“
– Gabor Gurbacs, digital asset strategist at Tether and investment management firm VanEck
Being a non-custodial platform for multi-blockchain tokenized assets, Tether allows users to be in full complete control of their assets. Similarly, Hadron is fully non-custodial so customers always retain full control while smart contracts are available via blockchain technology. It utilizes an intuitive user interface to interact with non-custodial assets as well as to setup and configure multi-signature wallets, including hardware wallets.
Hadron also supports a wide range of blockchains including Bitcoin sidechain Liquid Network by Blockstream. The Bitcoin L2, Ardoino noted in a post on X (previously Twitter), has been well received by current Hadron beta users including governments and institutions, in particular for its support for confidential transactions.
While currently in private beta, Hadron “is the beginning of a new era for finance, leading into wider inclusion, transparency, and efficiency,“ said Ardoino.
This move into asset tokenization underscores Tether’s diversification goals. Just last month, it funded a $45 million physical crude oil transaction with USDT that involved the movement of 670000 barrels of crude oil from the Middle East.
In another instance, Tether proposed creating a boron-backed token for the Turkish government. The token is to represent borate minerals, whose 70% supply is controlled by the nation.
Before that, in April, the firm invested $100 million in a Latin American agricultural firm that founded and is the partial owner of Agrotoken, an agricultural commodities tokenization startup.
Dominating the Stablecoin Market with Unmatched Growth
One of the most successful implementations of tokenization is stablecoin and Tether is leading this sector to help the rapidly-advancing crypto ecosystem maintain stability.
Unlike cryptocurrencies such as Bitcoin, Ether, Solana, and Dogecoin, which are highly volatile and, as such, not suitable for everyday use, stablecoin, as the name suggests, is stable. Hence, it plays a crucial role in the crypto space.
To maintain a stable value, stablecoins are pegged to a fiat currency like USD, commodities like gold, or financial instruments. This way, stablecoins provide an alternative to the high volatility cryptos, making them fit for usage in regular transactions.
Initially, stablecoins were used to buy crypto on exchanges that didn’t offer fiat currency trading pairs, only for their adoption to grow beyond to include payments and decentralized financial services.
USD pegged stablecoins are the most popular due to the US dollar being the dominant currency in the global financial sector and of course, one of the most stable fiat currencies in the world.
Among fiat currency-backed stablecoins, Tether’s USDT is the largest one with a market cap of $127.569 billion, according to Coingecko. During the recent Bitcoin rally, which saw Bitcoin price hitting a new all-time high (ATH) at $93,477, Tether minted $5 bln worth of USDT, which is pegged 1:1 to the US dollar.
Meanwhile, this entire year, USDT has added $35.86 billion to its market cap. Interestingly, it was during the last cycle that stablecoin adoption jumpstarted, with USDT market cap going from about $4 bln in March 2020 to surpassing $83 bln two years later.
While the entire stablecoin market has grown tremendously during this time, no other stablecoin comes close to USDT, which is the 3rd largest cryptocurrency in the entire industry.
USDC is the 2nd largest stablecoin and 8th largest cryptocurrency with a market cap of just $37 billion. USDC from Circle has only added $12.38 billion to its market cap this year and only $1.4 bln since Nov. 6 when President-elect Donald Trump’s win drove the market higher.
USDT is the clear winner in the stablecoin market, which was originally based on the Bitcoin blockchain but now also supports Ethereum, Solana, Tron, Avalanche, Polkadot, and Algorand, among other blockchains. Tether also issues tokens pegged to gold, the euro, the offshore Chinese yuan, and the Mexican peso.
The road to this success hasn’t been easy for Tether, which was the subject of a regulatory probe by the NYAG office in 2019, which ended about two years later with a $18.5 million settlement. Towards the end of the same year, Tether paid a $41 million fine to the US Commodity Futures Trading Commission (CFTC) for “over claims that Tether stablecoin was fully backed by U.S. dollars.“
According to Tether’s regular transparency reports, it is now fully backed. Meanwhile, its Q3 2024 financial results showed its reserves of over $105 billion in cash and cash equivalents. Tether also noted $102.5 billion in direct and indirect exposures to the US Treasuries, which it said would place the company among the top 18 holders globally if it were classified as a country.
For the quarter, its net profit was a record $2.5 billion, while the 2024 nine-month consolidated profit came in at $7.7 billion. Tether further reported owning an additional 7,100 Bitcoin while having strategic investments in renewable energy, Artificial Intelligence, telecommunications, and education.
Now, with its latest tokenization move, Tether is entering a sector that has the potential to be worth multi-trillion dollars as global banks join the race to bring traditional financial instruments onto blockchain.
Click here to learn all about investing in Tether (USDT).
Transforming Real-World Assets into Digital Opportunities
Tether’s Hadron comes at a time when there is currently a boom in tokenizing financial instruments on decentralized networks.
Tokenization is the process of turning traditional assets into digital tokens, representing the ownership rights for both tangible and intangible assets on a blockchain. Anything from stocks, private capital markets, money market funds, fixed income, commodities, debt, treasuries, and art to intellectual property can be tokenized.
Converting real-world assets into digital tokens allows them to be bought, sold, or traded more easily on digital platforms. Digital tokens can also be fractionalized, which removes the need for significant capital for investment. This makes traditional assets accessible to retail, hence increasing efficiency and liquidity.
This fast-growing market is currently worth more than $6.5 billion, up 12% over the past year, as per the data from DeFi Llama.
Meanwhile, according to data from rwa.xyz, the value of tokenized treasuries has reached almost $2.4 billion, up from $769 billion at the beginning of the year. This was only worth $100 million at the beginning of 2023.
Despite this growth, it is just the beginning as the market of tokenized assets is projected to be worth $4 trillion by the end of this decade, according to global consulting firm McKinsey & Company. However, “broad adoption of tokenization is still far away,“ the authors said in the report, released in the first half of the year.
Having said that, even McKinsey’s base case estimates the tokenized asset market to reach nearly $2 trillion market size by 2030. Meanwhile, Boston Consulting Group (BCG) has even bigger expectations from the sector, estimating tokenized asset market size to reach as high as $16 trillion during this period.
“We see a pattern of growing investor demand in the tokenized funds space. Over the coming period, we expect that trend to continue, especially when regulated on-chain money such as regulated stablecoin, tokenized deposit, and central bank digital currency (CBDC) projects materialize.”
– David Chan, Managing Director and Partner at BCG said late last month
Tokenization actually emerged as one of the hottest use cases for blockchains last year as banks and global asset managers came in droves to capture the trend.
Among these TradFi entrants, asset management giant BlackRock (BLK +0.22%) which launched Spot Bitcoin and Ethereum ETFs this year, has been leading this tokenization wave. Earlier this year, it launched the BlackRock USD Institutional Digital Liquidity Fund (BUIDL) in partnership with Securitize.
The asset manager also led a $47 million funding round for Securitize in May this year, which BlackRock’s global head of strategic ecosystem partnerships, Joseph Chalom, called “another step in the evolution of our digital assets strategy.“
BlackRock’s interest in tokenization has been in regard to solving “real problems“ for its clients. According to its CEO Larry Fink, tokenization will “define the next generation“ of security markets.
JP Morgan is another big player in the sector with its head of Onyx Digital Assets, Tyrone Lobban, calling tokenization “a killer app for traditional finance.“ The focus at Onyx is to tokenize money-market funds and private funds like credit, equity, and real estate.
Even crypto exchange Coinbase (COIN +6.4%) has been involved in tokenization via its Project Diamond. Late last year, it issued a short-term discount note denominated in USDC on this platform. Coinbase has noted in its research on tokenization that it can “become a major part of the new crypto market cycle“ within the coming years.
Besides Tether and Coinbase, other crypto-native firms involved in this trend include Midas, which launched two tokenized investment products last month, and Ondo, which has been using BUIDL for its derivative products.
Recent Developments in the Booming Tokenization Sector
Each crypto bull cycle tends to have popular narratives that define those. During the 2021 bull market, non-fungible tokens (NFTs) and metaverse were all that everyone talked about, from retail to mainstream brands.
This time, besides meme coins, prediction markets, Decentralized Physical Infrastructure Networks (DePIN), AI, and telegram trading bots, tokenization has captured the mind share.
As tokenization dominates the market interest, especially from institutions, we are seeing a lot of development in the sector.
As we shared above, financial giants like BlackRock, JP Morgan, and Franklin Templeton have made a lot of strides in tokenizing traditional assets. Other big names involved in putting RWAs on blockchain include Citi, Standard Chartered, Fidelity, Goldman Sachs (GS -0.91%), BNY Mellon, Société Générale, HSBC (HSBC +1.59%), Visa (V +0.83%) and American Express (AXP -0.45%), among others.
A survey by the Official Monetary and Financial Institutions Forum (OMFIF) has revealed that a vast majority (92%) expect financial markets to “experience a substantial degree of tokenization“ in three-plus years.
Banks and financial institutions are not the only ones interested in RWA tokenization; governments are even taking notice. The Monetary Authority of Singapore (MAS) is actually planning to introduce new measures to advance tokenization. Singapore’s central bank and financial regulator said earlier this month that it will form commercial networks to develop infrastructure, deepen liquidity, and enable access to common settlement facilities for these assets.
“MAS has seen strong interest in asset tokenization in recent years, notably in fixed income, FX, and asset management. We are encouraged by the keen participation from financial institutions and fellow policymakers to co-create industry standards and risk management frameworks to facilitate commercial deployment of tokenized capital markets products and scale tokenized markets on an industry-wide basis.“
– Leong Sing Chiong, deputy managing director of MAS
The US Treasury Department’s panel of Wall Street advisers meanwhile see the tokenization of the country’s debt along with other assets to provide significant advances, as per the group’s new report from last month.
“Even small incremental improvements in a very large market like the Treasuries market can be impactful at scale,“ it noted, only to add that “the way forward should involve a cautious approach spearheaded by a trusted central authority.”
While authorities are calling for more regulation, as the Financial Stability Board (FSB) and the Bank for International Settlements (BIS) did recently, the benefits of tokenization are too big to ignore, hence, its continued adoption.
This adoption is happening both on public and private chains. When it comes to the permissionless, public blockchains being used to tokenize assets, Ethereum continues to be in the lead. With $1.6 billion in assets under management, Ethereum accounts for over 70% of the tokenized treasury market.
While Ethereum’s extensive ecosystem, widespread adoption, and robust security make it a popular choice for tokenizing funds, its scalability issues have remained a constant problem, shifting the focus to other chains.
For instance, Elmnts launched its tokenized investment platform for funds backed by mineral rights royalties in Solana.
Meanwhile, Franklin Templeton whose Nasdaq-listed On-Chain U.S. Government Money Fund (FOBXX) originally operated on Stellar has since extended to Polygon, Aptos, Avalanche, and Coinbase’s own L2 Base, to “provide more options to investors and strengthen the fund’s reach within the tokenized asset space.“ Interestingly, the Wall Street giant only launched its fund on Ethereum just last week.
Even BlackRock has expanded its Digital Liquidity Fund (BUIDL) to Polygon, Aptos, Arbitrum, and Avalanche.
Being multichain allows companies to capture the unique benefits of different blockchains, such as low cost, fast transaction execution, broader accessibility, and enhanced security. Among these networks, Stellar accounts for about 17% of the market share, followed by Solana at 5.8%, while networks like Arbitrum, Optimism, and Sui account for smaller shares.
Conclusion
So, as we saw, tokenization is getting a lot of traction, especially from the traditional finance sector. This shift makes sense, as tokenization is seen as the next step in the evolution of the financial industry, offering cost efficiency, speed, simplicity, and accessibility. Moreover, it is projected to be worth over a trillion dollars in the coming years. With TradFi coming in droves to take advantage of blockchain technology by tokenizing real-world assets, crypto-native platforms are also jumping in to bridge the two worlds.
Tether’s entry into the booming tokenization sector with Hadron, in particular, marks a pivotal moment in the evolution of blockchain tech and the crypto sphere. Already a leader with its fiat-backed stablecoin USDT, and now, by combining cutting-edge non-custodial solutions and compliance tools, it is further solidifying its leadership position by continuously innovating and advancing crypto adoption.
Click here for a list of top ten real-world asset tokenization platforms.
