OPPORTUNITIES IN the CRYPTO ECOSYSTEM

Download white paper

CRYPTOCURRENCY INVESTING

looking beyond cryptocurrencies

Savvy long-term investors willing to look beyond the breathless hype are likely to find enduring investment opportunities around real-world applications of distributed ledger technology. These ventures are likely to generate attractive risk-adjusted returns – even if crypto-mania itself fizzles.

$500 Bn

Annual revenue of the metaverse in 2021

“

The most powerful applications of blockchain may be unrelated to cryptocurrencies.”

The crypto ecosystem

Cryptocurrencies are part of a broader ecosystem that extends well beyond digital tokens to the underlying blockchains as well as the necessary infrastructure to support mining and storage. It also includes cryptocurrency exchanges and applications built on blockchains such as non-fungible tokens and cross-border payment networks. Additionally, it encompasses the constellation of compliance, risk management and security tools.

Source: PGIM Thematic Research.

+ Click to enlarge

EXPLORE

Bitcoin: Not quite a currency

OPPORTUNITIES IN the CRYPTO ECOSYSTEM

Download white paper

Private blockchains & smart contracts

Key blockchain enablers

Security & Fraud Prevention

Tokenization

Private blockchains & smart contracts

Key blockchain enablers

Security & Fraud Prevention

Tokenization

Permissioned blockchains offer efficiencies in the origination, servicing and trading of assets, especially those (like real estate) with many different participants across the value chain and incompatible legacy systems. Private blockchains can be easily scaled because of the centralized authority verifying users and will likely have the largest near-term impact on financial services firms. When partnered with self-executing smart contracts, distributed ledger technology offers enhanced efficiency in the clearing and settlement of securities. In fact, private blockchains and smart contracts are already handling trades with almost no need for humans to verify counterparties, confirm trade instructions or settle transactions.

The landscape for innovation in blockchain infrastructure is wide open and there is tremendous potential for key enablers to reduce current challenges and barriers, such as:

Given the complicated regulatory environment for cryptocurrencies and concerns raised by decentralized and anonymous transactions, there is a growing field of AML risk assessment and management providing services such as:

Tokenization entails fractionalized ownership of real assets into digital tokens on a distributed ledger. This could substantially reduce frictional costs from transactions and servicing.

long-term investment themes

Considering Bitcoin for an Institutional Portfolio

CRYPTOCURRENCY INVESTING

*CoinMarketCap, as of May 9, 2022. < www.coinmarketcap.com >

UNDERSTANDING THE CRYPTO CURRENCY ECOSYSTEM

the metaverse

* Carson, Brant, Romanelli, Giulio, Walsh, Patricia and Zhumaev, Askhat, “Blockchain Beyond the Hype: What Is the Strategic Business Value?” McKinsey Digital, June 19, 2018. < https://www.mckinsey.com/business-functions/mckinsey-digital/our-insights/blockchain-beyond-the-hype-what-is-the-strategic-business-value >

the metaverse

*Parikh, Harsh, “Institutional Gold!” PGIM Institutional Advisory & Solutions, November 2019. < https://www.pgim.com/white-paper/institutional-gold >

The metaverse is big and will get bigger. The total annual revenue from the metaverse generated today is $500 billion and as large as the "real-world" global sports industry. Applications in the metaverse may start leading to tangible improvements in real-world industries especially in education, training, healthcare and e-commerce, as well as the VR/AR hardware field. New uses of metaverse platforms are spawning innovative technologies, including holographic displays and speech recognition. Cryptocurrencies and digital tokens are the currency in the metaverse. This is a world where crypto natives have chosen to adopt digital currencies and tokens as the sole medium of exchange and unit of account to trade NFTs and buy digital assets.

Institutional investors should track new technologies, companies and platforms in the metaverse for three primary reasons:

Lack of clear regulatory, legal and tax guidelines leads to compliance uncertainties. Further refinement is needed to work across private assets and at an efficient scale under real-world conditions.

Challenges:

For asset owners, it increases liquidity, simplifies transactions and allows more granular portfolio construction. Shorter and more flexible lock-up periods for investors.

The ability for blockchains to “talk” and transact with each other seamlessly is referred to as interoperability. This innovation could make interoperable smart contracts possible for record and document management. Layer 2 technologies that enhance performance and scalability on popular platforms like Ethereum. Software companies that support the development of decentralized applications, or dApps.

Benefits:

Private blockchains & smart contracts

Key blockchain enablers

Security & Fraud Prevention

Tokenization

the metaverse

Due diligence and risk assessment for customers Hacking and fraud prevention solutions Tools for AML and other risk management

Watch Video

The tokenization of financial assets has the potential to transform financial services. Tokenization creates an immutable digital representation of a real-world asset, which can then be settled and cleared on a distributed ledger and traded in whole or fractional parts. If most financial and real assets were recorded on a blockchain, it could disrupt virtually all aspects of investing – from clearing and settlement, to how assets are custodied, accounted for and serviced, to even how they are bought and sold.

THE TOKENIZATION OF REAL ESTATE

Watch video

ENGLISH

GERMAN

JAPANESE

Simplified Chinese

ITALIAN

Traditional Chinese

ENGLISH

GERMAN

JAPANESE

CHINESE

ITALIAN

Download white paper

Download executive summary