Institutional investors are poised to enter the decentralized finance (DeFi) space, particularly through tokenized shares of high-value commercial real estate, according to Kunal Bhasin, digital asset co-lead at KPMG Canada. Speaking at the Toronto Collision Conference, Bhasin highlighted that tokenization could democratize ownership of traditionally inaccessible assets, such as major commercial properties like Toronto’s Eaton Center shopping mall.

The concept of tokenizing commercial real estate involves converting ownership rights into digital tokens on a blockchain, allowing investors—ranging from family offices to pension fund managers—to acquire fractional ownership. This innovation, Bhasin noted, has the potential to unlock significant investment opportunities within the crypto industry, expanding beyond the confines of traditional real estate investment.

However, Bhasin emphasized that institutional players in the DeFi sector prefer a more regulated and transparent environment. He stressed the importance of robust Know-Your-Client (KYC) procedures and participant identification mechanisms to ensure compliance and mitigate risks associated with illicit activities. This cautious approach aligns with institutional standards and regulatory expectations, facilitating smoother integration of blockchain technology into mainstream financial practices.

Recent developments in tokenization have shown promising albeit gradual adoption. For instance, Bitfinex Securities facilitated a tokenized asset raise for a Hilton hotel investment in El Salvador, although initial funding targets have yet to be fully met. This example underscores the early stages of tokenized asset markets, indicating both potential and challenges in attracting sufficient investment volumes.

Beyond real estate, Bhasin also highlighted the burgeoning use case of tokenized Treasurys and money market funds, citing the success of the BlackRock USD Institutional Digital Liquidity Fund (BUDIL). This fund has demonstrated substantial growth since its launch, reflecting increasing institutional interest in digital asset investments with robust regulatory oversight and compliance measures.

Despite the progress, Bhasin acknowledged lingering concerns among asset management firms and banks regarding reputational risks associated with crypto investments. He noted that while the industry is making strides in mitigating fraud and scams through advanced blockchain analytics, such as those provided by Chainalysis, comprehensive safeguards are crucial for broader institutional adoption.

Looking forward, Bhasin predicted that institutional involvement in crypto and digital assets will become a competitive necessity rather than an option. Institutions that fail to embrace these technologies risk falling behind competitors who leverage the advantages of blockchain-based financial solutions, potentially facing challenges in maintaining relevance and competitiveness in the evolving financial landscape.