Tokenization could create a $5 trillion opportunity, with stablecoins and central bank digital currencies (CBDCs) leading the way. This is according to Bernstein.

The benefits of tokenization are simple, the process brings operational efficiencies and improved liquidity and accessibility, Bernstein said in a research report on Tuesday.

Tokenization is the process by which real-world assets are converted into blockchain-based tokens.

Bernstein estimates that the size of the tokenization opportunity could be as much as $5 trillion over the next five years, led by stablecoins and central bank digital currencies (CBDC), private market funds, securities and real estate.

Currency tokenization, via stablecoins and central bank digital currencies, will see application in on-chain deposits and payments, the report said, with about 2% of global money supply to be tokenized over the next five years, which is about $3 trillion, the report added.

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“Over the next five years, we expect a swell in the stablecoins and CBDC tokens in circulation, led by China’s CBDC program,” analysts led by Gautam Chhugani wrote. “Stablecoins and CBDC tokens, coupled with yield farming in decentralized markets, will compete with bank deposits as an investment or saving instrument,” the analysts wrote.

Still, the broker notes current regulatory uncertainty, and says that “tokenization using blockchain can only succeed when policy-makers appreciate the benefits of blockchains and how crypto tokens are an indispensable part of blockchain operations.”

“How policy-makers regulate blockchain-based businesses will determine how they view tokenization of real-world assets,” the note said, adding that “regulations may blunt the advantages of tokenization.”

Read more: Crypto Market Regulatory Uncertainty Overshadows Blockchain Development: Bank of America

The benefits of tokenization are straightforward, according to Bernstein’s research report on Tuesday. The process would bring about operational efficiencies and enhance liquidity and accessibility. Tokenization is the conversion of real-world assets into blockchain-based tokens. Bernstein estimates that the tokenization opportunity could reach as much as $5 trillion over the next five years, with stablecoins, central bank digital currencies (CBDC), private market funds, securities, and real estate leading the way. The report stated that currency tokenization, through stablecoins and CBDC, will be used for on-chain deposits and payments, with about 2% of the global money supply to be tokenized over the next five years, which is approximately $3 trillion. According to analysts led by Gautam Chhugani, “over the next five years, we expect a swell in the stablecoins and CBDC tokens in circulation, led by China’s CBDC program. Stablecoins and CBDC tokens, coupled with yield farming in decentralized markets, will compete with bank deposits as an investment or saving instrument,” the analysts wrote. However, the broker notes that there is current regulatory uncertainty, and the “tokenization using blockchain can only succeed when policy-makers appreciate the benefits of blockchains and how crypto tokens are an indispensable part of blockchain operations.” The note stated that “how policy-makers regulate blockchain-based businesses will determine how they view tokenization of real-world assets,” adding that “regulations may blunt the advantages of tokenization.”