Citi says mass adoption of crypto will be driven by CBDCs, tokenization

Citi says the industry is finally “approaching a tipping point” and that blockchain technology will soon see “billions of users and trillions of dollars in value.”

In their latest report “Money, Tokens and Games: Blockchain’s Next Billion Users and Trillions in Value,” Citi analysts suggest that the next influx of crypto adoption will be driven primarily by the rise of central bank digital currencies (CBDCs) and the tokenization of assets in the real world.

CBDCs are alternatives to cryptocurrencies such as Bitcoin or Ethereum. Based on current trials, CBDCs will be tied to a fiat currency, be it dollars or pounds, but exist digitally and are controlled by the issuing currency’s central bank, such as the Fed or the Central Bank of England.

During a panel event today at the Citi Digital Money Symposium, which coincided with the report’s release, the bank’s future in finance led. Ronit Ghose suggested that there will be $5 trillion circulating in the economy in CBDCs “by the end of this decade.”

Still, he added the reminder that “most of it won’t be blockchain-based, but some of it will have blockchain interoperability or be DLT-specific.” DLT refers to distributed ledger technology, which does not necessarily include the use of a blockchain.

This rapid adoption will be due to its myriad benefits, according to the report, including an interoperable payment instrument and general enthusiasm from developing economies.

There are still clear risks, in particular the protection of users’ privacy and users who withdraw deposits from smaller commercial banks in order to move to a CBDC.

Citi moves to tokenization

Another key driver behind mass crypto adoption will be tokenization, or bringing traditional financial assets into the blockchain.

Citi said it “could be the killer use case” for blockchain technologies, estimating that tokenization could “grow by a factor of 80 times in private markets and reach almost $4 trillion in value by 2030.”

Cited efficiencies include disintermediation within financial markets, composability with cryptocurrencies, and ultimately a “shared ‘golden source’ infrastructure” where different asset classes can exist on the same network.

Naturally, there are clear roadblocks on the way to this “golden” standard.

Regulatory clarity is perhaps the biggest, with few jurisdictions offering clear frameworks for adopting traditional assets in the chain.

There could also be pushback from those in the financial industry, Citi reports, as the disintermediation such technologies offer could make their jobs obsolete.