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As the new era arrives, various fields are attracting attention, and we will introduce current trends, future predictions, and keywords to watch, focusing on crypto assets and security tokens (ST).
The emergence of next-generation technology is bringing changes to the world of finance. The term Fintech, a combination of finance and technology, has become widely used in society.
The expansion of the crypto asset market using blockchain and the full-scale launch of security token (ST) trading in Japan are prime examples of this. In light of record inflation and extremely chaotic social conditions, the financial sector is also entering a new phase.
Many people immediately think of crypto assets when they hear the word fintech. Bitcoin (BTC), created in 2009 by an unidentified person calling himself Satoshi Nakamoto, has revolutionized the financial sector and also sparked new innovations.
One event that Bitcoin has brought to the financial sector is the approval and start of trading of spot ETFs in the United States, which is still fresh in our memory. Until now, the realization of a Bitcoin spot ETF had been distant due to various reasons, such as Bitcoin's high volatility and management risks, but it was born as a result of the tireless efforts of various companies. This has strengthened the connection between crypto assets and existing finance.
On the other hand, with the approval of a Bitcoin spot ETF and the inflow of more funds from individual and institutional investors than ever before, it has become common to hear people express that "Bitcoin has been incorporated into existing finance."
However, the fact that an internet asset that has only been around for about 15 years has been recognized as a financial asset in the world's largest economic power, the United States, is of great historical value.
It is true that the vision may differ from what Satoshi Nakamoto originally envisioned, but it can certainly be said that Bitcoin has revolutionized the world in the core and fundamental aspect of innovation, which is to improve people's lives. And as can be seen from the record inflow of funds into Bitcoin spot ETFs, it can also be said that Bitcoin and crypto assets are about to swallow up existing finance.
The next stage for crypto assets as financial assets is "accelerated popularization." As a tool to brighten up daily life, the world needs to first create an environment where many people can have access to them.
▶︎Top 10 stocks by market capitalization (as of May 16): Quoted from CoinMarketCap
So, what kind of crypto assets will be required in the future? It can be said that it is the "third generation" projects that are good at solving the technical issues of conventional blockchains and creating highly decentralized products.
The first generation here is Bitcoin, the ancestor of crypto assets, and the second generation is Ethereum (ETH), which has had a great impact on the use of blockchains. Therefore, the third generation is defined as something that improves on the good points of Bitcoin and Ethereum, or has a unique character through a different approach.
One of the issues that is often pointed out as a challenge for blockchains is the "scalability problem." Simply put, the scalability of a blockchain is the ability to process transactions. In the case of Bitcoin, for example, transaction records are compiled into a certain amount of blocks. Then, one block is generated once every 10 minutes.
However, there is a limit to the amount of data that can be recorded in one block, and there is an issue that it takes time to process when a large number of transactions occur.
In recent years, there has been an increase in projects that focus on the scalability of blockchains, and as a result, transactions are becoming faster. DeFi is a technology that utilizes blockchains and has been gaining prominence in recent years.
DeFi is a collective term for financial services built on blockchains without a specific administrator. In particular, the trading volume of DEXs, which are called "decentralized exchanges," recorded an all-time high in dollar terms at the same time as Bitcoin hit its highest price in March 2024.
When the cryptocurrency market is booming, the trading volume of DEXs also tends to increase, and "meme coins" in particular are likely to be the subject of trading. Meme coins are issued with the motif of so-called "internet jokes."
The most well-known meme coin is Dogecoin (DOGE), and recently there was a meme coin issued with the motif of former US President Trump.
Compared to cryptocurrencies such as Bitcoin and Ethereum, the prices of these meme coins are more likely to fluctuate wildly, and they are often considered to be ephemeral and not even traded immediately.
However, meme coins can rise dramatically in price and trading volume along with the market conditions of cryptocurrencies, so they can be called "floral news" that announces the arrival of spring in cryptocurrencies.
At the time of writing, meme coins can be said to be a symbol of the boom in cryptocurrencies, but their sustainability in the medium to long term is extremely low. In terms of future potential, we should focus on the blockchains on which these meme coins are issued.
Currently, blockchains that are actively issuing meme coins include Solana (SOL) and Avalanche (AVAX). These have the advantage of being able to process transactions and record many transactions in one block.
In addition, it is known as a leading blockchain that addresses the scalability issue mentioned above, and at the same time, it can be said to be a representative project of the third generation at the moment.
In fact, Solana-based DEX is gradually expanding its market share, and dApps and game projects built on Avalanche are also on the rise. In other words, this highly practical and versatile blockchain and the crypto assets issued there have the potential to become the center of the next movement as the market continues to evolve.
● Solana (SOL): Very fast transaction approval speed and low fees. It can process up to 65,000 transactions per second.
● Avalanche (AVAX): A blockchain that balances speed and decentralization. It is increasingly being used in dApps and game development.
● BNB Chain: Developed by major cryptocurrency exchange Binance, it is expected to be used in various fields such as "MetaFi".
● Hedera Hashgraph (HBAR): A project that uses a unique distributed ledger technology, and major companies such as Google are also involved in its operation.
The existence of security tokens, which the government and Tokyo Metropolitan Government are also paying close attention to
So far we have been talking about crypto assets, but another representative of fintech is security tokens (STs).
STs refer to securities issued on the blockchain and are also known as "digital securities." In Japan, legal arrangements have been in place since around 2020, and "START," run by Osaka Digital Exchange, opened as a secondary distribution market last year, making it a symbol of the digitalization of finance.
According to Nomura Research Institute, STs issued in fiscal 2023 will be 97.6 billion yen, 5.8 times higher than last year.
▶ Domestic security token (public offering) issuance amount by fiscal year and blockchain platform: Quoted from Nomura Research Institute's "Summary and Outlook of the Japanese Digital Securities (RWA) Market"
In addition, when looking at the global market size of ST, it is estimated that it will expand to 16.1 trillion dollars, or about 2,500 trillion yen in Japanese yen, in 2030, and expectations are rising for significant growth globally.
▶︎Market size forecast for ST including RWA: Excerpt from a report prepared by Boston Consulting Group
Currently, most STs are backed by real estate, but in the future, it is expected that they will be expanded to a wide range of areas such as stocks and bonds. In addition, there is a possibility that "STO", a fundraising method using ST, will become more widespread in the future.
The advantage of ST is that it can be traded 24 hours a day, 365 days a year in principle because it is issued on the blockchain. In addition, it is also possible to subdivide one ST like crypto assets, making it easier for a wide range of investors to participate, which is also attractive.
Currently, adjustments are being made to relax regulations surrounding ST to further popularize it. The Financial Services Agency will take the lead in deregulating the market, making it easier for companies to issue and sell ST than ever before.
This is expected to increase the number of STs themselves, which may also increase investors' willingness to invest. In addition, there are plans to focus on ensuring transparency and promote it by expanding the price determination of STs and the items disclosed to investors.
In addition, Tokyo Metropolitan Government began accepting applications for subsidies for the ST market expansion promotion project from April 2024. Companies in Tokyo whose applications are approved will be partially subsidized for the costs of issuing ST. Tokyo Metropolitan Government will provide similar support in 2023, demonstrating its intention to further strengthen its efforts to expand the ST market.
In this way, given the current situation in which the national government, Tokyo Metropolitan Government, and other administrative bodies are working hard to promote ST, it can be said that ST has the potential to become a financial standard.
In addition to the crypto assets and ST we have covered so far, there are other keywords that will color the next generation of finance. For example, stable coins, which are expected to be issued in earnest in various places from this summer, are one of them. The emergence of stable coins is expected to speed up international payments and reduce transaction fees.
In addition, domestic crypto asset exchanges are expected to be able to trade with stable coins backed by legal tender such as USD Coin (USDC), which may lead to improved convenience for a wide range of users.
In addition, while it is nearly equal to ST, "Real World Assets (RWA)", which is used to tokenize real assets, and "DePIN", which is gaining attention, are also keywords to keep an eye on.
In particular, DePIN has the potential to become a trend in 2024 in the Web 3.0 field due to the dramatic growth of AI.
"Decentralized Physical Infrastructure Networks" (DePIN) refers to a wide range of infrastructure such as physical servers and transportation networks, but its definition has not yet been established. However, the demand for cryptocurrencies and blockchains related to these emerging areas is likely to accelerate in the future, so it is time to start collecting information.
As I have said many times before, the vision of making people's lives better is important at the core of innovation, not just in finance. Technologies and fields with a clear vision will naturally be utilized and have the potential to expand in scale. With that in mind, I recommend that you pay attention to convenience and areas that are likely to grow in the future, follow the trends, or try using them yourself.
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