Avalanche Foundation to invest $50M in tokenized assets

What is Avalanche?

The Avalanche Foundation, the community supporting the decentralized blockchain Avalanche, has revealed plans to buy tokenized assets worth $50 million minted on the network.

Codenamed Avalanche Vista, the foundation’s latest mission is to bring digital versions of traditional investment products, such as equities, credit, real estate and commodities, to the layer-1 blockchain.

“Our mission is to tokenize the world’s assets. Vista is our next show of commitment to do that. It’s not just dollars involved, but commitment to help web2 players work with us,” said John Wu, president of Ava Labs, the firm that created the network.

Tokenization democratizes asset allocation, allowing multiple investors to pool funds by trading digital tokens. This way, smaller investors can access markets that were too expensive for them before.

“It creates a faster, more efficient way for companies to issue assets, individuals to own them, and everyone to transfer value,” Wu said.

Liquidity poses challenge to tokenization

According to Wu, the most challenging aspect of tokenization currently lies in liquidity. Before liquidity can be improved, the efficiency of tokenization at a larger scale needs to be proven. The $50 million investment aims to address this specific issue.

In the coming 12 to 18 months, Wu said that Avalanche would have a long pipeline of partnerships to improve tokenization liquidity. He said it is the perfect time for the broader adoption of tokenization.

Over the past year, both traditional financial institutions and companies native to the crypto industry have been working faster to enable on-chain applications. They use tokenized assets that are usually held off-chain.

According to a recent study by asset manager VanEck, institutions will tokenize around $25 billion of off-chain assets in 2023.

A recent report by Digital Asset Research suggested equities and real estate to be the most common tokenized asset types. Of 41 centralized finance organizations studied, 26 have their own tokenized asset marketplaces and 30 support the fractionalization of risk-weighted assets (RWA). Those centralized finance institutions use RWA as a risk assessment measure.

Last September, investment company KKR worked with digital asset firm Securitize to tokenize a part of its private equity fund on the Avalanche network. It was the first time KKR offered an alternative investment strategy in digital form in the U.S.

“We’re big believers in blockchain technology and the role it’ll play in shaping future private markets,” said Dan Parant, managing director and co-head of U.S. private wealth at KKR.

As of June last year, KKR is among the largest investment management firms in the U.S., managing $491 billion in assets.

Accessibility is continuously evolving, and recent initiatives like KKR’s tokenization are paving the way for regulated entities to explore new investment opportunities in the crypto space, as explained by Wu.

Wu said asset tokenization on the blockchain would be influential in the next decade, and this viewpoint is shared within the industry. BlackRock CEO Larry Fink, for instance, said that creating more tokenization of assets and securities could lead to a revolution in finance.

In 2022, BlackRock managed $8.5 trillion in assets. Allocating just 0.1 percent of that amount for tokenization would result in $850 million.

Tyrone Lobban, the head of blockchain at JPMorgan’s Onyx, shared his company’s plan for institutional-grade decentralized finance (DeFi), emphasizing the untapped potential in tokenizing assets.

Institutional DeFi blends the capabilities of DeFi protocols with extra precautions to meet regulatory requirements. It incorporates know-your-customer (KYC) measures in crypto’s lending pools, seen in projects like Aave Arc and the Siam Commercial Bank-Compound Treasury partnership.