Will the "iPhone moment" of Web3 technology occur in 2024?

Author: Jason Jiang, OKLink Research Institute

Affected by the macro tightening environment and the collapse of large institutions, the crypto market has experienced nearly two years of a downturn. With macro policies stabilizing and positive news about crypto asset spot ETFs emerging, combined with the surge in inscriptions and the approaching halving cycle, interest in crypto assets continues to rise.

A new cycle seems to be on the horizon. But aside from the market recovery, what else can we expect in 2024? At the end of the year, the OKLink Research Institute hopes to return to the essence of Web3 technology, avoiding discussions on market trends and regulation, and exploring the potential "iPhone moment" for Web3 technology from a technical application perspective in the next cycle.

1. Tokenization is the Driving Force for the Large-Scale Adoption of Web3 Technology

In early 1995, a new coffee shop opened at 12 St. Mark's Place in New York. This coffee shop was unremarkable, yet it caused a stir at the time because it offered a service that many people had never heard of—access to the internet. At that time, the internet was a niche product, with participants being the new humans expecting "cyberspace" to bring a new order. It wasn't until more applications related to real life emerged that the internet became the carrier of everything in reality, such as cafes, restaurants, libraries, schools, and more: the internet became the most important infrastructure of the era.

Today's Web3 is like the internet of 1995—exciting but niche. However, as more businesses and governments choose to embrace innovation, the Web3 market urgently needs more applications and products that are closer to reality to break down the barriers between technology and users and truly achieve large-scale adoption. Observing various innovations, we believe that tokenization will become the driving force for the large-scale adoption of Web3 technology and is the most anticipated keyword for 2024.

According to the Carlota Perez framework, 21.co believes that crypto technology is transitioning from a frenzy to a collaborative phase.

The fundamental logic of the internet is to enhance connections: connections between people, between people and things, and between things. As the next generation of the internet, Web3 technology should follow the same logic. However, for more than a decade, Web3, especially the crypto market, has remained relatively closed, with narratives limited to on-chain. Despite often experiencing hundreds or thousands of times growth, it ultimately remains an internal cycle within the crypto ecosystem, with no real connection to reality. It wasn't until tokenization was brought back into focus that the integration of Web3 with the real world began to experience unprecedented growth.

Tokenization brings not only on-chain innovation but also changes beyond the chain. ------ Tokenization alters the ways in which various assets in the real world are valued, settled, and stored, such as real estate, artworks, or various financial instruments and products. Compared to other crypto innovations, tokenization allows blockchain and Web3 to become more tangible because its underlying assets are at least perceivable and understandable to users.

The currently issued tokenized products are basically supported by off-chain assets.

Another characteristic of tokenization is its greater friendliness towards regulation. The difficulty of regulating crypto assets arises from their existence outside the real world, lacking reference regulatory rules, but tokenization is more closely connected to reality and can be seen as an evolutionary form of asset digitization. As long as the real assets of tokenized products are grasped, regulatory touchpoints can be found. Therefore, compared to other crypto innovations, tokenization is more friendly and easier to accept by regulators. Additionally, the banks and financial institutions currently participating in tokenization practices will also bring their capabilities and experience in compliance to the tokenization field.

In early November 2023, the Hong Kong SFC issued a circular regarding tokenized securities.

Blythe Masters, former head of JPMorgan's commodities trading business, stated in a 2015 interview with Bloomberg, "You should take this technology as seriously as you did the development of the internet in the early 1990s." This statement is timely—more perceptible to users, more valuable to institutions, and more friendly to regulation, tokenization has become an important driving force in accelerating the adoption of Web3 technology.

2. What Will Tokenization in 2024 Be Different from 2023?

There is still a long way to go for the full adoption of tokenization and Web3 technology, but changes will continue to occur in 2024. Compared to 2023, the OKLink Research Institute believes that tokenization will exhibit the following characteristics:

(1) The blockchain and Web3 technologies supporting tokenization will become more invisible on the backend, with innovation focusing more on real-world tokenized products. Blockchain technology will also integrate more closely with existing information technology, accelerating the on-chain process of more real assets and data.

(2) More countries and regions will not only recognize the development potential of tokenization but will also accelerate the formulation of rules to adapt to tokenization innovations. Hong Kong, Thailand, and Singapore have already laid the groundwork for tokenization practices, and their initiatives will serve as references for other countries and regions.

(3) Although on-chain native tokenization projects may be more vibrant, traditional financial institutions' tokenization practices will be more active in 2024. Tokenization can bring benefits such as improved capital efficiency, reduced operational costs, enhanced transparency, and meeting diverse needs to traditional financial markets, but many of these advantages are still theoretical. To innovate more cautiously, we believe that financial institutions will continue to adopt a step-by-step strategy for tokenization practices in 2024, starting with partial processes of financial products to gain some technological advantages before expanding to the entire process. Immediate full-scale tokenization is still unrealistic.

(4) Deposit tokenization and fund tokenization will see more prosperous development in 2024. Deposit tokenization may be the asset closest to large-scale application at present, as the regulatory attitude in the U.S. has shifted positively, and JPMorgan's tokenized deposit scheme has also received the green light. We expect more banks to participate in 2024. In terms of tokenized funds, Harvest International launched Asia's first tokenized fund for professional investors in November this year, and it is reported that more Hong Kong funds are exploring tokenization for public funds aimed at retail investors: Hong Kong may become a leader in the tokenized fund market.

(5) Financial institutions will increasingly choose to conduct tokenization practices on public chains. Unlike the asset tokenization that occurred more frequently on private or permissioned chains in 2017, financial institutions are increasingly exploring tokenization of traditional financial instruments and products within a decentralized framework. This indicates that public chain technology has rapidly developed over the past few years and has initially possessed the capability to support commercial applications, and it also reflects the growing confidence of traditional financial institutions in the security and performance of public chain networks. This change stands in stark contrast to a few years ago but will continue into 2024.

The blockchain selection of issued tokenized products.

There are many noteworthy events in 2024: Bitcoin halving, Ethereum Cancun upgrade, crypto asset spot ETFs, etc., which may elevate the scale of crypto to another level and create new highs in market capitalization; however, tokenization innovation excites us even more because it will not only bring more real assets into the digital space but also make Web3 technology truly enter the real world, allowing technology to create value in real scenarios.

2024 may be the turning point for tokenization and Web3 technology, and we look forward to the arrival of the "iPhone moment" for Web3 technology.