Tokenized debt helped Decentralized Finance (DeFi) weather the intense bear market between 2021 and 2022, but a strategic shift towards tokenized stocks could fuel the $115 billion crypto sector through its next growth phase, according to a recent analysis by crypto market maker Wintermute.

The report suggests that the necessary market conditions to drive this pivot away from tokenized debt towards equities are already present. A key factor highlighted is the expectation that central banks will lower interest rates within the next 12 to 18 months, which could lower bond yields and diminish returns on other debt instruments.

Fintech app Robinhood is strategically positioning itself for this potential market shift, having launched tokenized stock trading for its users earlier this year in June. Wintermute noted the significance of Robinhood’s timing: “As the yield trade loses momentum, tokenized equities, less dependent on interest rate dynamics, could emerge as the next major driver of on-chain adoption.”

Unlike bonds, tokenized equities promise exposure to volatility, growth potential, community aspects, and the inherent appeal and excitement sought by retail investors – factors notably lacking in DeFi since its peak in 2021.

Making a Splash in a Small Pond

To date, however, tokenized stocks represent a niche segment within DeFi’s broader real-world assets (RWA) market. They constitute only $424 million, a tiny fraction of the $25 billion RWA market predominantly comprised of tokenized credit, government securities, and other lower-volatility debt instruments.

While Robinhood’s move aims to capture attention, significant competition is emerging. Crypto-native exchanges like Kraken and Bybit are enhancing their tokenized stock offerings, and entities like Ondo Finance are seeking regulatory approval to acquire assets like Oasis Pro, a regulated broker. Furthermore, Coinbase has formally requested SEC approval for tokenized stock trading.

Wall Street incumbents face disruption from these developments. Galaxy Digital analysts warn that Robinhood, alongside native players like Coinbase and Kraken, entering tokenized equities could diminish the NYSE and similar venues to “mere custodians.” Large traditional players are responding by developing their own stablecoin and tokenization platforms.

Despite the competition, Galaxy Digital suggests the market advantage will belong to firms offering trading access alongside control of the underlying blockchain infrastructure.

This analysis overlooks cryptocurrency price fluctuations and associated news. The data presented focuses solely on tokenized assets specifically.