The national banking system, and with it the financing of commercial real estate, is undergoing fundamental changes due to innovations in the world of cryptocurrencies, tokenisation and stablecoins. On 4th June, Goldman Sachs announced a partnership with Apex Group, a global fund administrator based in Bermuda, and Archax, a London-based digital asset platform. This collaboration aims to leverage Goldman's bespoke blockchain platform to launch a tokenised commercial real estate fund using cryptocurrency assets.
Mathew McDermott, global head of digital assets at Goldman Sachs, commented on the firm's announcement: “This collaboration is another step on our journey to advance on-chain markets for digital assets.” This move by Goldman Sachs, which involves linking with international cryptocurrency platforms to tokenise its real estate investment funds, follows similar developments. J.P. Morgan Chase, Bank of America, Wells Fargo and Citibank are planning to open a joint tokenised deposit network by 2027, which is intended to allow clients to convert traditional bank deposits into digital tokens on the blockchain.
This private initiative, the financing volume of which is not publicly known, demonstrates the growing commitment of large financial institutions. J.P. Morgan's digital token, JPM Coin, which represents the bank's US dollar deposits in the cryptosphere, already records an average of around $3 billion in transactions per day. This could be interpreted as a sign that the largest banks are hedging their positions with regard to the future of cryptocurrencies and blockchain payments.
Robert Hockett, Professor of Law and Financial Regulation at Cornell Law School, noted that smaller players always explore new avenues in finance. Only when their stability and ability to attract capital are proven will larger institutions like Goldman Sachs and investment banks accept cryptocurrencies. While cryptocurrencies such as Bitcoin and Ethereum have been used for 17 years by millions of users for peer-to-peer transactions on decentralised, cryptographically secured blockchain ledgers – circumventing traditional banks and clearing houses – the growth of tokenisation funds in the commercial real estate sector is a comparatively recent phenomenon.
Tokenisation – the conversion of traditional financial investments such as shares, bonds, funds and stakes in commercial real estate into cryptocurrency tokens on the blockchain – is expected to increase significantly in the coming years, which explains the preparation of Goldman Sachs and other Wall Street players for their own tokenised funds and deposit bases. The Deloitte Center for Financial Services estimates that the volume of tokenised commercial real estate will rise from less than $300 billion in 2024 to $4 trillion by 2035.
Shlomi Ronen, Managing Partner and Founder of Dekel Capital, stated: “Tokenisation is fundamentally a way of selling ownership of real estate in digital form, compared to the historical method. This occurs either through investments in legal entities with title deeds or passive real estate ownership structures. Ultimately, tokenisation enables a modernisation of title ownership.”
The reason for the increasing acceptance of tokenisation lies not solely in modernised titles, but significantly in the growing acceptance and understanding of stablecoins across the entire financial sector. Stablecoins, unlike Bitcoin or other volatile cryptocurrencies, are the essential element for financial transactions and thus for tokenisation. As the prices of individual cryptocurrencies like Bitcoin fluctuate widely, stablecoins were developed as a cash management tool to serve as collateral for crypto loans and transactions. They are digital currencies pegged to a stable reference value of real assets, such as US dollars or euros.
Hilary Allen, Professor of Law at American University Washington College of Law, defined stablecoins as “the poker chips in the crypto casino” and originally viewed them as a payment mechanism. Matthew Bisanz, a partner at Mayer Brown in Washington, D.C., compared stablecoins to gift cards: they enable purchases and transactions because they represent a defined real monetary value. Under US law, every issuer of stablecoins must hold $1 in liquid assets, typically US Treasury bonds, for each stablecoin issued. However, there is no limit to the circulating supply or the number of issuers, and stablecoins are not, like bank deposits, insured by the FDIC.
Professor Hockett of Cornell argued that stablecoins, despite their reputation in technology circles, are not an entirely new concept. Money market funds essentially served a similar function, as each share is worth exactly $1, and if the value increases, additional shares are added to an investor’s holdings to maintain parity. Hockett critically asked: “The point of stablecoins is to use this crypto asset exactly as you would use a dollar, but what added value does that create? We already have a dollar; the dollar is the ultimate stablecoin, and its value is stable.”
