2. Introduction to Tokenization
“Tokenization” refers to the process of recording ownership claims on financial or real assets that exist in traditional ledgers onto blockchain programmable platforms, creating digital representations of assets. These assets can be traditional tangible assets (such as real estate, agricultural or mineral commodities, and digital artworks), financial assets (stocks, bonds), or intangible assets (such as digital arts and other intellectual property). The resulting “tokens” are digital certificates of ownership recorded on blockchain programmable platforms for trading. Tokens are not merely digital certificates but typically encapsulate the rules and logic governing the transfer of underlying assets managed in traditional ledgers. Therefore, tokens are programmable and customizable to meet personalized scenarios and regulatory compliance requirements.
Tokenization of assets involves the following four steps:
2.1 Identifying Underlying Assets
When asset owners or issuers recognize the potential benefits of tokenization, the process begins. This step requires defining the structure of tokenization, as specific details determine the overall design of the tokenization scheme. For example, tokenizing a money market fund differs from tokenizing carbon credits. Designing the tokenization scheme is crucial as it clarifies whether tokenized assets will be considered securities or commodities, which regulatory frameworks will apply, and which partners will be involved.
2.2 Token Issuance and Custody
Creating digital representations of assets based on blockchain involves first securing control over the digital representations corresponding to the underlying assets. This typically involves qualified custodians or licensed trustees, whether physical or virtual. Subsequently, tokens representing the underlying assets are created on the blockchain in a specific form, embedding code to execute predefined rules. Asset owners choose specific token standards (such as ERC-20 and ERC-3643), networks (private or public blockchains), and functionalities (e.g., user transfer restrictions, freezing, and reclaiming), which are implemented by tokenization service providers.
2.3Token Distribution and Trading
Tokenized assets can be distributed to end investors through traditional channels or new channels like digital asset exchanges. Investors need to establish accounts or wallets to hold digital assets, while the equivalent of physical assets remains locked in the issuer’s account with traditional custodians. This step typically involves distributors (e.g., private wealth departments of large banks) and transfer agents or brokers. Depending on the issuer and asset type, tokenized assets may also be listed on secondary market trading platforms to create liquidity markets post-issuance.
2.4 Asset Servicing and Data Verification
Digitally distributed assets to end investors require ongoing servicing, including regulatory, tax, and accounting reporting, as well as periodic Net Asset Value (NAV) calculations. The nature of services depends on the asset type; for instance, servicing carbon credit tokens differs from fund token audits. Services necessitate coordination of on-chain and off-chain activities, handling diverse data sources. The current tokenization process is complex, involving up to nine parties (asset owners, issuers, traditional custodians, tokenization providers, transfer agents, digital asset custodians or brokers, secondary markets, distributors, and end investors), two more than traditional asset processes.
3. Advantages of Tokenization
Tokenization unlocks the vast potential brought by digital currencies and blockchain technology for assets. Broadly, these advantages include 24/7 operation, data availability, and instantaneous atomic settlement.
Moreover, tokenization offers programmability—embedding code within tokens—and interaction with smart contracts (composability), enabling higher levels of automation. Specifically, as asset tokenization scales up, beyond concept validation, the following advantages become increasingly apparent:
3.1 Enhancing Capital Efficiency
Tokenization significantly enhances capital efficiency in the market. For instance, tokenized repurchase agreements (Repo) or redemption of money market funds can achieve instant settlement within minutes (T+0), compared to the current traditional settlement time of T+2. In the current high-interest-rate market environment, shorter settlement times can save substantial funds. For investors, these savings in funding costs may be the reason why recent tokenized US Treasury projects have had a significant impact. On March 21, 2024, Blackrock and Securitize have released the first tokenized fund BUIDL on a public blockchain – Ethereum.
3.2 Permissionless Democratic Access
One of the most touted benefits of tokenization or blockchain is democratized access, eliminating the need for permissioned barriers to entry. This characteristic, following the fragmentation of ownership into smaller shares (lowering investment thresholds), may enhance asset liquidity, provided that the tokenization market becomes widespread. In certain asset classes, streamlining intensive manual processes through smart contracts can significantly improve unit economics, thereby serving smaller-scale investors. However, access to these investments may be restricted by regulations, meaning many tokenized assets may only be available to qualified investors.
We can observe prominent private equity giants like Hamilton Lane and KKR collaborating with Securitize to tokenize their managed private equity feeder funds, offering a “fair-priced” way for a broad range of investors to participate in top-tier private equity funds. The minimum investment threshold has been dramatically reduced from an average of $5 million to just $20,000. However, individual investors still need to undergo qualified investor verification through the Securitize platform, maintaining certain access thresholds.
3.3 Cost Savings in Operations
Programmability of assets can serve as another source of cost savings, especially for asset categories involving highly manual, error-prone processes and numerous intermediary institutions, such as corporate bonds and other fixed-income products. These products often involve customized structures, imprecise interest calculations, and coupon payment expenses. Embedding operations like interest calculations and coupon payments into smart contracts of tokens automates these functions, significantly reducing costs. System automation through smart contracts can also reduce costs associated with securities lending and repurchase transactions.
In 2022, the Bank for International Settlements (BIS) and the Hong Kong Monetary Authority launched the Evergreen project, issuing green bonds using tokenization and a unified ledger. This project leverages distributed ledger technology to integrate participants involved in bond issuance onto a single data platform, supporting multi-party workflows and offering specific participant authorization, real-time validation, and signature capabilities. This enhances transaction processing efficiency, with bond settlements achieving Delivery versus Payment (DvP), reducing settlement delays and risks. Real-time data updates on the platform also enhance transaction transparency for participants.
As time progresses, the programmability of tokenized assets can also create benefits at the portfolio level, enabling asset managers to dynamically rebalance portfolios automatically in real-time.
3.4 Enhanced Compliance, Auditability, and Transparency
Current compliance systems typically rely on manual checks and retrospective analysis. Asset issuers can automate these compliance checks by embedding specific compliance-related operations (e.g., transfer restrictions) into tokenized assets. Additionally, the 24/7 data availability based on blockchain systems presents opportunities for simplified consolidated reporting, immutable record-keeping, and real-time auditability. A tangible example is carbon credits, where blockchain technology can provide immutable and transparent records for credit purchasing, transfers, and retirements, with transfer restrictions and Measurement, Reporting, and Verification (MRV) functionalities embedded into smart contracts of tokens. Thus, when initiating carbon token transactions, tokens can automatically verify the latest satellite images to ensure the underlying energy-saving emission reduction projects are still operational, thereby enhancing trust in the project and its ecosystem.
3.5 Cheaper, More Flexible Infrastructure
Blockchain is inherently open-source and continues to evolve with the drive from thousands of Web3 developers and billions of dollars in venture capital. Assuming financial institutions opt to operate directly on public permissionless blockchains or hybrid public/private blockchains, innovations in blockchain technology (such as smart contracts and token standards) can be adopted swiftly and easily, further reducing operational costs. Given these advantages, it’s understandable why many large banks and asset management firms are so interested in this technology. However, due to the limited scale of use cases and adoption of tokenized assets, some of these noted advantages remain theoretical for now.
4. The Challenges Facing the RWA Industry
Despite the numerous potential benefits, large-scale tokenization of assets has been rare to date, influenced by the following factors:
4.1 Insufficient Technological and Infrastructural Preparedness
The adoption of tokenization is hindered by limitations in existing blockchain infrastructure. These include the ongoing shortage of institutional-grade digital asset custody and wallet solutions that fail to offer sufficient flexibility in managing account policies like transaction limits. Furthermore, blockchain technology, especially on permissionless public blockchains, has limited capacity to operate efficiently under high transaction throughput, which cannot support tokenization use cases, especially in mature capital markets. Lastly, decentralized private blockchain infrastructures (including developer tools, token standards, and smart contract guidelines) pose risks and challenges to interoperability between traditional financial institutions, such as cross-chain protocols and liquidity management.
4.2 Limited Current Business Cases and High Implementation Costs
Many potential economic benefits of tokenization may only be realized at scale. However, this might require an educational cycle to transition and adapt back-office workflows not originally designed for tokenized assets. This situation means unclear short-term benefits and challenges in gaining organizational approval for business cases. Not everyone is initially adept at digital currency and blockchain technology, making operations during the transition period complex and potentially involving the simultaneous operation of two systems (e.g., digital and traditional settlements, coordination of on-chain and off-chain data compliance, digital and traditional custody, and asset servicing). Finally, many traditional clients in capital markets have yet to demonstrate interest in 24/7 infrastructure and increased liquidity, posing further challenges for the listing of tokenized products.
4.3 Immature Market Ecosystem
To achieve faster settlement times and increased capital efficiency through tokenization, instant cash settlement is required. However, despite progress in this area, there is currently no widespread cross-bank solution: tokenized deposits are currently only piloting in a few banks, stablecoins lack regulatory clarity, cannot be considered anonymous assets, and cannot provide real-time ubiquitous settlements. Secondly, tokenization service providers are still in their infancy, temporarily unable to provide comprehensive and mature one-stop services. Moreover, the market lacks large-scale distribution channels for appropriate investors to access digital assets, contrasting sharply with the mature distribution channels used by wealth and asset managers.
4.4 Regulatory Uncertainty
To date, the regulatory frameworks of tokenization vary by region or are simply non-existent. Challenges faced by US participants include unclear finality of settlement, lack of legal enforceability of smart contracts, and unclear requirements for qualified custodians. More unknowns remain regarding the capital handling of digital assets. For example, the US Securities and Exchange Commission set out through the SAB 121 to assert that digital assets must reflect on the balance sheet when offering custody services. This standard is more stringent than traditional assets, resulting in high costs for banks holding or even distributing digital assets.
4.5 Industry Needs Coordination
Market infrastructure participants in the capital market have yet to demonstrate a consistent willingness to build a tokenized market or transfer the market to the chain, and their participation is crucial because they are ultimately recognized holders of assets on the ledger. The motivation of stakeholders to shift to new on-chain infrastructure for tokenization is inconsistent, especially considering the significant changes in roles among many financial intermediaries that are still decentralized. Even though carbon credit, as a relatively new asset class, initially encountered challenges in setting up operations on blockchain. Although tokenization can bring significant benefits such as enhanced transparency, it currently appears that Standard
5. The First Wave of RWA has Arrived
Despite facing numerous challenges and unknowns, recent trends and widespread adoption over the past few months indicate that tokenization has reached a turning point in certain asset classes and their use cases. The first wave of tokenization has arrived (Tokenization in Waves).
5.1 Extensive Adoption of Stablecoins
Tokenized assets that operate 24/7 with instant settlement require support from tokenized cash, with stablecoins being the cornerstone of the tokenization market.
Stablecoin Definition: Most cryptocurrencies experience significant price fluctuations, making them unsuitable for payments; for example, Bitcoin can fluctuate greatly within a single day. Stablecoins are digital currencies designed to maintain a stable value, typically pegged 1:1 with fiat currencies like the US dollar. Stablecoins offer the best of both worlds: they maintain lower daily volatility while leveraging the efficiencies, economic benefits, and global accessibility of blockchain technology. According to SoSoValue data, approximately $153 billion of tokenized cash is currently circulating in the form of stablecoins (such as USDC, USDT). Some banks have already launched or are planning to launch tokenized deposit functions to enhance cash settlement in commercial transactions. These nascent systems are not without flaws; liquidity remains dispersed, and stablecoins have yet to be recognized as anonymous assets. Nevertheless, they have proven sufficient to support significant transaction volumes in the digital asset market, with monthly on-chain trading volumes of stablecoins typically exceeding $500 billion.
5.2 Tokenization of US Treasuries in Response to Short-term Business Demands
The current high-interest-rate environment has garnered significant market attention for tokenized use cases based on US Treasuries, as these products indeed deliver economic benefits and enhance capital efficiency. According to RWA.XYZ data, the tokenized US Treasuries market has grown from $770 million at the beginning of 2024 to $1.75 billion as of July 1, marking a 227% increase.
Simultaneously, Short-Term Liquidity Transactions (such as tokenized repurchase agreements and securities lending) are Gaining Appeal Amid Rising Interest Rates.**
JPMorgan’s institutional-grade blockchain payment network, Onyx, currently processes $2 billion in transactions daily. The volume on Onyx is attributed to JPMorgan’s “Coin System” and “Digital Asset” solutions. Additionally, traditional banks in the United States are welcoming a wave of large (typically profitable) digital asset business clients, such as stablecoin issuers. Retaining these clients necessitates 24/7 real-time value and tokenized cash flow, further catalyzing business cases that accelerate tokenization capabilities.
5.3 Progressive Clarity in Tokenization Regulatory Frameworks
By the end of June, the EU had implemented regulatory requirements for stablecoins under the Crypto Assets Market Regulation (MiCA), while Hong Kong sought feedback on stablecoin implementation. Other regions like Japan, Singapore, the UAE, and the UK also issued new guidelines to enhance transparency in digital asset regulation. Even in the United States, market participants are exploring various tokenization and distribution methods, leveraging existing rules and guidance to mitigate current regulatory uncertainties. Following the June 7th hearing of the House Committee on Digital Assets, Financial Technology, and Inclusive Growth on “Next-Generation Infrastructure: How Tokenization of Real-World Assets Can Facilitate Efficient Market Operations,” SEC Commissioner Mark Uyeda emphasized the potential of tokenization to transform capital markets during a securities market event on June 14th. Particularly with the advancement of digital currency as a significant issue in the U.S. election process, the focus of traditional financial capital has shifted from previous negative “speculation” to actively transforming traditional finance.
5.4 Market Expansion and Infrastructure Maturity
Over the past five years, many traditional financial service companies have bolstered their capabilities in digital assets with dedicated teams of 50 or more personnel established by multiple banks, asset management firms, and capital market infrastructure companies. Concurrently, understanding of this technology and its prospects among established market participants continues to evolve.
According to Coinbase’s Q2 cryptocurrency status report, 35% of Fortune 500 companies are considering launching tokenization projects. Executives from 7 out of the top 10 Fortune 500 companies are exploring stablecoin use cases, particularly interested in the low-cost and real-time settlement aspects of stablecoin payments. 86% of Fortune 500 executives recognize the potential benefits of asset tokenization for their companies, with 35% of them currently planning to launch tokenization projects (including stablecoins). Furthermore, significant financial market infrastructures are currently conducting more experiments and planning feature expansions. For example, on May 16th, the Depository Trust & Clearing Corporation (DTCC), the world’s largest securities settlement system handling over $200 trillion in transactions annually, collaborated with blockchain oracle Chainlink on the Smart NAV pilot project. This project utilized Chainlink’s cross-chain interoperability protocol CCIP to introduce Net Asset Value (NAV) quote data for mutual funds across nearly all private or public blockchains.
Participants in the pilot include Century Investment Company, BNY Mellon, Edward Jones, Franklin Templeton, Invesco, JPMorgan Chase, MFS Investment Management, Mid-Atlantic Trust Company, State Street, and Bank of America. The pilot demonstrated that by providing structured data on-chain and establishing standardized roles and processes, foundational data can be embedded into various blockchain use cases, thereby opening up multiple innovative applications for fund tokenization.
While tokenization has not yet reached the scale necessary to fully realize all its benefits, the ecosystem is maturing, and potential challenges are becoming clearer. The adoption of tokenization in business cases is gradually increasing. Particularly benefiting from the current high-interest-rate environment, arguments that tokenization can enhance capital efficiency have been strongly supported by real-world examples such as Blackrock’s successful launch of tokenized funds (from a traditional finance perspective) and Ondo Finance’s tokenized US Treasury products (from a crypto finance perspective), along with the popularity of the $ONDO token.
It can be said that the first wave of tokenization has arrived.
As for the argument that tokenization can provide liquidity for traditional illiquid assets, this point awaits further market validation. This argument will be built upon the widespread adoption of tokenized assets. Nonetheless, these real-world use cases demonstrate that tokenization is poised to continue attracting attention and creating meaningful value for global markets over the next two to five years.
6. RWA Industry Asset Categories and Projects
Asset categories with large market volumes, significant value chain frictions, immature traditional infrastructures, or low liquidity are most likely to reap substantial benefits from tokenization. However, being most likely to profit does not necessarily mean being prioritized for implementation. The adoption rate and timing of tokenization will depend on the attributes of asset categories, including expected returns, feasibility of implementation, timing of impact, and risk appetites of market participants. These factors will determine whether and when related asset categories can be widely adopted.
Specific asset categories can lay the groundwork for the adoption of other asset categories by introducing clearer regulations, more mature infrastructures, better interoperability, and faster, more convenient investments. Adoption rates will also vary by region, influenced by dynamic and evolving macro environments, including market conditions, regulatory frameworks, and buyer demand. Lastly, the success or failure of flagship projects may either drive or limit further adoption of tokenization.
6.1 Mutual Funds
Tokenized money market funds have attracted over $1 billion in managed assets, indicating significant demand from investors with on-chain capital in high-interest-rate environments. Investors have the option to choose funds managed by established companies such as Blackrock, WisdomTree, Franklin Templeton, as well as Web3 native projects like Ondo Finance, Superstate, and Maple Finance. The underlying assets of these tokenized money market funds are primarily U.S. Treasuries. This marks the current first wave of tokenization, characterized by the widespread adoption of tokenized funds. As the scope and scale of tokenized funds continue to expand, additional related products and operational advantages will be realized. Just as PayPal launched its stablecoin on Solana at the end of May, signaling the first step towards widespread adoption: awakening awareness—that is, simply introducing the fact that new technology exists to people; the next step in adopting new payment technologies is to achieve utility, translating initial awareness into practical utility in everyday life. The concept behind PayPal’s stablecoin launch can also be applied to the widespread adoption of tokenization in the market.
Transitioning to on-chain tokenized funds can significantly enhance the utility of funds, including real-time 24/7 execution, instant settlement, and the use of tokenized fund shares as payment instruments. Furthermore, leveraging on-chain composability, Web3 native project issuers are enhancing token utility based on their unique characteristics. For example, the team behind $USTB, Superstate (founded by Compound’s co-founder), announced that their token can now be used to collateralize trades on FalconX. Teams behind $USDY and $OUSG, such as Ondo Finance, announced that $USDY can now be used as collateral for perpetual contract trades on Drift Protocol. Additionally, through the composability of hundreds of tokenized assets, highly customized investment strategies become feasible. Placing data on shared ledgers can reduce errors associated with manual reconciliation, increase transparency, and thereby lower operational and technological costs. While the overall demand for tokenized money market funds partly depends on interest rate environments, they undoubtedly play a crucial role in driving the development of the tokenization market. Other types of mutual funds and ETFs can also offer diversified on-chain capital to traditional financial instruments.
6.2 Private Credit
Blockchain-based private credit is still in its nascent stages, but disruptors have already begun to succeed in this field: Figure Technologies is one of the largest non-bank home equity line of credit (HELOC) lenders in the United States, with billions of dollars in loans issued. Web3 native projects like Centrifuge and Maple Finance, alongside companies like Figure, have facilitated over $10 billion in on-chain credit issuance.
Traditional credit industries are labor-intensive, with high intermediary involvement and stringent entry barriers. Blockchain-based credit offers an alternative solution with numerous advantages: real-time on-chain data stored in a unified ledger serves as a single source of truth, enhancing transparency and standardization throughout the loan lifecycle. Smart contract-based expenditure calculations and simplified reporting reduce costs and labor. Shortening settlement cycles and accessing broader funding pools can accelerate transaction processes and potentially lower borrowers’ capital costs. Importantly, global liquidity can fund on-chain credits without requiring permissioned access. Future advancements could involve tokenizing borrowers’ financial metadata or monitoring their on-chain cash flows, achieving fully automated, fairer, and more accurate project financing. Consequently, more loans are shifting towards private credit channels, appealing to borrowers for cost savings and efficient processes. The non-standardized nature of private credit holds significant potential for explosive growth, a sentiment also endorsed by Securitize CEO’s positive outlook on the development of tokenized private credit industries.
6.3 Bonds
Over the past decade, tokenized bonds have exceeded $10 billion in total nominal value issued globally (compared to over $140 trillion in outstanding nominal bonds). Recent notable issuers include Siemens, City of Lugano, World Bank, alongside other corporate, governmental entities, and international organizations. Additionally, blockchain-based repurchase agreements (Repo) have gained adoption, with monthly trading volumes in North America reaching trillions of dollars, creating value through operational and capital efficiency within existing fund flows. Digital bond issuance may continue as scaling offers high potential returns, with relatively low entry barriers currently stimulating certain capital market developments. For instance, in Thailand and the Philippines, issuing tokenized bonds decentralizes access, enabling small investors’ participation. While issuance advantages have historically prevailed, end-to-end tokenized bond lifecycles could enhance operational efficiency by at least 40% through data clarity, automation, embedded compliance (e.g., programmable transfer rules into tokens), and streamlined processes (e.g., asset intermediation services). Lowering costs, expediting issuance, or fragmenting assets can improve financing for smaller issuers by facilitating “instant” funding (optimizing borrowing costs by raising specific amounts at specific times) and enlarging investor bases through global capital pools.
6.4 Repurchase Agreements (Repo)
Repo agreements represent a tangible example of tokenization adoption and its benefits today. Broadridge Financial Solutions, Goldman Sachs, and JPMorgan currently transact trillions in repos monthly. Unlike some tokenization use cases, repos do not require full tokenization of the value chain to realize real benefits. Financial institutions tokenizing repos primarily achieve operational and capital efficiencies. Operationally, smart contract-enabled executions automate daily lifecycle management (e.g., collateral valuation and margin calls), reducing errors and settlement failures while simplifying reporting. Capital efficiency-wise, 24/7 real-time settlement and on-chain data analytics facilitate intra-day liquidity needs through short-term lending, enhancing collateral and capital efficiency. Historically, most repo agreements have durations of 24 hours or longer. Intra-day liquidity can mitigate counterparty risk, reduce borrowing costs, facilitate short-term incremental lending, and minimize liquidity buffers. Real-time, cross-jurisdictional collateral fluidity can channel higher returns, optimizing the availability of high-quality liquid assets among market participants.
7. RWA Industry Outlook
The tokenization market is steadily progressing, expected to accelerate with enhanced network effects. Given their characteristics, some asset classes may enter large-scale adoption stages with real-world significance by 2030, tokenizing assets exceeding $100 billion. McKinsey estimates the first adoptable asset classes will include cash and deposits, bonds, mutual funds, ETFs, and private credit. For cash and deposits (stablecoin use cases), adoption rates are already high, benefiting from blockchain efficiencies, value returns, and increased technical and regulatory feasibility.
McKinsey estimates tokenized market capitalization for all asset classes could reach approximately $20 trillion by 2030, with pessimistic and optimistic scenarios ranging between about $10 trillion to about $40 trillion. These estimates exclude stablecoins, tokenized deposits, and central bank digital currencies (CBDCs). Previously, Citi predicted in its Money, Tokens, and Gaming (Blockchain’s Next Billion Users and Trillion-Dollar Value) research that, excluding tokenized cash, the market could reach $5 trillion by 2030. The first wave of tokenization described above has completed the daunting task of mass market penetration. After establishing a foundation in the first wave of asset tokenization, or in the presence of clear catalysts, it is more likely to expand the scale of tokenization of other asset classes. For other asset classes, the adoption rate may be slower, either because expected returns are only incremental or because of feasibility issues, such as difficulties in meeting compliance obligations or lack of incentives for key market participants. These asset classes include publicly traded and unlisted stocks, real estate, and precious metals.
No matter if tokenization is at a turning point, a natural question arises: how should financial institutions respond to this moment? The specific timeframe and ultimate adoption of tokenization remain unclear, but early institutional experiments with certain asset classes and use cases (such as money market funds, repos, private equity funds, corporate bonds) suggest scaling potential for tokenization within the next two to five years. Those wishing to ensure leadership in this ecosystem can consider the following steps.
7.1 Reevaluate foundational business cases
Institutions should reassess the specific advantages and value propositions of tokenization, along with implementation approaches and costs. Understanding the impact of higher interest rates and volatile public markets on specific assets or use cases is crucial for correctly assessing the potential benefits of tokenization. Similarly, continually exploring provider landscapes and understanding early applications of tokenization will help refine estimates of technology costs and benefits.
7.2 Build technological and risk capabilities
Regardless of where existing institutions stand in the tokenization value chain, preparing for new waves requires reserving knowledge and capabilities. First and foremost, it’s crucial to establish a fundamental understanding of tokenization technology and its associated risks, particularly concerning blockchain infrastructure and governance responsibilities (who can approve what and when), token design (limitations on assets and enforcement of these limits), and system design (decisions regarding ledger and record storage locations and their impact on asset holder characteristics). Understanding these fundamental principles can also help maintain proactive communication in subsequent interactions with regulatory bodies and clients.
7.3 Establish ecosystem resources
Given the current relatively fragmented nature of the digital world, institutional leaders must timely devise ecosystem strategies to integrate them into other (traditional) systems and partners, maintaining a competitive edge.
7.4 Engage in standard-setting
Finally, institutions aspiring to lead in the tokenization field should maintain communication with regulatory bodies, offering advice on emerging standards. Key areas for standardization consideration include control (appropriate governance, risk, and control frameworks to protect ultimate investors), custody (what constitutes qualified custody of tokenized assets on private networks, when to use digital twins vs. native digital records, what constitutes good control locations), token design (support for types of token standards and related compliance engines), and blockchain support and data standards (which data to keep on-chain vs. off-chain, reconciliation standards).
8. Summary
Comparing the current state of tokenization markets with other major paradigm shifts in technology indicates that we are still in the early stages. Consumer technologies (such as the internet, smartphones, and social media) and financial innovations (such as credit cards and ETFs) typically show the fastest growth in the first five years after birth (over 100% annually). Subsequently, we observe growth rates slowing to around 50%, eventually achieving a more modest compound annual growth rate of 10% to 15% over a decade. Despite tokenization experiments starting as early as 2017, significant issuance of tokenized assets has only emerged in recent years. Based on McKinsey’s estimates for 2030, assuming tokenized market growth rates averaging 75% across all asset classes, those in the first wave of tokenization are positioned in the lead. Although it is reasonable to anticipate tokenization driving transformation in the financial industry over the next few decades, and seeing mainstream financial institutions actively participating, such as Blackrock, Franklin Templeton, and JPMorgan, more institutions remain in a “wait-and-see” mode, awaiting clearer market signals.
We believe the tokenization market is at a critical juncture, and once we see some important indicators, the tokenization process will rapidly advance, including:
Infrastructure: Blockchain technology supporting trillions of dollars in transaction volume;
Integration: Seamless integration of blockchain for various applications;
Enablers: Broad availability of tokenized cash (e.g., CBDCs, stablecoins, tokenized deposits) for instant settlement transactions;
Demand: Buyer interest in large-scale investments in on-chain investment products;
Regulation: Actions that provide certainty and support a more fair, transparent, and efficient financial system across jurisdictions, clarifying data access and security.
While we await more catalyzing signs, we expect the wave of mass adoption to closely follow the earlier described first wave of asset tokenization. This will be led by financial institutions and market infrastructure participants, jointly capturing market value and establishing leadership positions.
The post first appeared on HTX Square.
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