[TL;DR]
- Tokenization delivers real efficiency by cutting issuance costs 40–60% in bonds, real estate, collateral management, and trade finance while enabling real-time settlement.
- A multilayer tech stack—blockchain networks, smart contracts, oracles, wallet infrastructure (incl. WaaS), and exchanges—underpins the tokenized economy; interoperability and standards remain the key hurdles to scale.
- Most institutions are in the Phase 1–2 adoption stage with low-risk products, while leaders are already deploying live systems, setting market standards, and shaping the next generation of financial infrastructure.
1. Financial infrastructure is being redesigned
1.1 What is tokenization?
The global financial system still runs on infrastructure built decades ago—fragmented, slow in places, and increasingly misaligned with how markets and capital actually move. Tokenization is the redesign of that infrastructure layer. It’s not a superficial digital overlay; it replaces the very base financial institutions have long relied on.
Tokenization records asset ownership and value on a shared digital ledger and makes assets tradable 24/7. Tokens can represent financial assets (securities, real estate, funds) or non-financial assets, enabling fractional ownership, near-instant settlement, and embedded compliance. As tokenization scales globally, it reduces intermediaries, accelerates trade cycles, and broadens market access.
Blockchain technology, introduced in 2008, is no longer new. What’s new is the convergence of technological maturity, regulatory progress, and recognition of transformational potential—together driving institutional investment. Infrastructure is finally catching up to the vision.
Institutions that move now gain more than cost savings. By embedding token-based models into operations, they unlock new revenue streams, reach new customer segments, and stay connected with the market’s most advanced users. As one market-infrastructure expert notes, “Without industry alignment on shared infrastructure, we risk creating more silos—the very challenges we aim to overcome.”
1.2 Why now?
The tokenized-asset market has seen swings. Early on, tokenized assets were lumped together with various forms of digital money. Momentum stalled in 2022 as several high-profile blockchain projects collapsed. Since early 2023, however, market value has grown at a double-digit CAGR.
A European bank executive observes, “Tokenization progresses at different speeds by asset class. It’s fastest where there’s clear second-market potential and tangible efficiency gains.” Several structural and market factors are accelerating growth:
- Regulatory clarity is expanding as more jurisdictions adopt comprehensive legal frameworks for digital assets.
- Enterprise-grade tech has matured and integrates with core banking stacks, wallets, custody, and institutional token standards.
- User-friendly infrastructure (e.g., wallets integrated into mobile apps) lowers adoption barriers.
Global banks are adopting blockchain for cross-border payments and automated settlement. Some Tier-1 institutions are scaling from pilots to production. For example, JPMorgan’s Kinexys has processed over $1.5 trillion in tokenized transactions with $2+ billion in daily volume since launch. Fintech and tech M&A is active as banks and major FIs acquire startups to accelerate tokenization capabilities.
Behaviorally, first movers issuing tokenized products create a follower effect, drawing in other issuers and investors; learning effects spread as leaders refine implementation strategies. Tokenized commodities—including gold, oil, and agri-products—are rising. Demographically, demand is growing among younger investors who favor digital assets; rising incomes and intergenerational wealth transfers amplify this trend.
1.3 Market outlook: $0.6T in 2025 → $18.9T by 2033
Tokenization of real-world assets (RWAs) is projected to grow from about $0.6T in 2025 to $18.9T by 2033 under a base-case scenario (53% CAGR). An optimistic case reaches $23.4T; a conservative case, $12.5T.
Estimates focus on high-potential, relatively stable RWA classes. Cryptocurrencies are excluded due to speculative use; CBDCs are excluded because they need not rely on blockchain rails. China and Russia are omitted due to regulatory constraints and limited access.
By asset class, deposits, stablecoins, and alternatives (PE, hedge funds) lead early growth; post-2029, tokenization accelerates in traditional assets like real estate, equities, and bonds.
By industry, financial institutions will lead initially by tokenizing bonds and funds; from 2029 onward, consumer, industrial, and technology companies are expected to participate more broadly.
By region, the U.S. is expanding in tokenized funds, Treasuries, and collateral amid improving regulatory clarity. Europe is laying the groundwork under MiCA. Switzerland offers one of the earliest and most comprehensive legal frameworks for tokenized securities and DLT infrastructure.
In the Middle East, efforts focus on real estate and private credit, supported by policy alignment and national programs. In APAC, leaders like Japan, Singapore, and Hong Kong run regulatory sandboxes and consortia to test tokenized funds, bonds, and structured products.
2. Real problems tokenization solves
2.1 Investment-grade bonds: 40–60% issuance cost reduction
The $140T global bond market suffers from high issuance costs, slow settlement, and over-reliance on intermediaries. Tokenization directly addresses these frictions—cutting operating costs 40–60%, enabling near-instant settlement, and reducing systemic risk via smart-contract automation.
Banks like ABN AMRO, HSBC, and the European Investment Bank have already issued tokenized bonds on public blockchains. An issuer placing $1B/year can save $2–3M annually through lower intermediary fees, shorter settlement cycles, and automated compliance.
Deeper second-market infrastructure and integration of on-chain issuance with existing workflows are still needed. Today, most tokenized bonds trade within limited investor groups; as liquidity grows, price discovery and volumes improve. Europe leads, but given U.S. capital-market depth and evolving regulation, higher volumes are expected there as well.
As bond tokenization scales, issuers fund faster; investors gain better liquidity and transparency; settlement failures and operational errors fall. This is not mere digitization of old processes—it’s a structural redesign of issuance and trading.
2.2 Real estate: unlocking liquidity in a $300T market
Real estate—over $300T in global asset value—remains among the least liquid and most opaque asset classes. Tokenization begins with institutional-grade assets (commercial real estate, infrastructure, large real-estate funds), enabling fractional ownership and broadening access over time.
Given diverse legal frameworks, most real-estate tokenization today uses SPVs or REIT-like wrappers to create compliant digital securities. In countries like Switzerland and the UAE, managers and platforms already attract global investors with tokenized products. A $5B property fund could unlock up to $500M in new capital while reducing annual management and compliance costs by $100–150M over five years through automation and expanded distribution.
Although early deployments face legal and regulatory complexity, deeper second-market liquidity reduces illiquidity discounts and improves exit pricing. Investors gain better exit options for traditionally locked-up capital.
Beyond easier trades, tokenization democratizes access to a class historically reserved for institutions and UHNW investors. Smaller investors can own slices of premium portfolios—potentially reshaping the market’s structure.
2.3 Collateral management: real-time settlement and efficiency
The $16T global repo and collateral market struggles with fragmented settlement and slow asset mobility. Tokenization enables on-chain collateral, real-time transfers, and smart-contract margin management.
A global bank with $100B daily repo volume can save $150–300M per year by reducing idle collateral, accelerating cycles, and achieving T+0 settlement. Capital efficiency improves as collateral moves instantly and can be reused across trades; settlement failures and operational errors decline.
Scaling requires interoperable token standards, common margin rules, and regulatory clarity on rehypothecation. Today, most activity sits within single institutions or closed networks; as standards solidify and rules evolve, collateral will flow more freely across the system.
Long term, collateral becomes programmable—moving and reallocating automatically when conditions are met. Institutions operate without chronic over/under-collateralization as all collateral is tracked and optimized in real time.
2.4 Trade finance: optimizing working capital
Global trade finance (>$10T) still runs on paperwork and manual reconciliation. Tokenization enables real-time invoice settlement, programmable payments, and improved liquidity access for SMEs and large enterprises alike.
A company handling $5B/year in cross-border trade can unlock $200–400M in working capital and cut annual financing costs by $20–50M. End-to-end cycle time—from documentation to settlement—drops significantly. Tokenized invoices and bills of lading are validated and tradable automatically, removing frictions across the trade cycle.
To scale, the ecosystem needs standardized digital documentation, legally recognized smart contracts, and integration with logistics and banking infrastructure. Digital documentation is the bottleneck; without it, tokenized products can’t replace traditional trade flows. The path forward embeds tokenized workflows within existing rails rather than ripping and replacing.
Tokenized trade finance also brings supply-chain transparency: suppliers, buyers, banks, and logistics providers share a single source of truth, reducing disputes and delays. SMEs gain easier access to financing, making global trade participation more inclusive.
3. Core infrastructure of the tokenization stack
3.1 Blockchain networks
At the base are blockchain networks—the ledgers where transactions are recorded and verified. Public chains (e.g., Ethereum, XRP Ledger) offer transparency and interoperability; private/permissioned chains give enterprises more control over throughput and privacy.
Early tokenization projects favored private chains due to regulatory uncertainty and concerns about public networks. Recently, institutions like Société Générale and Citi have shifted toward permissioned public approaches to tap broader liquidity and interoperability. Public chains let multiple institutions and platforms recognize and trade the same tokens, escaping walled gardens.
Network choice is strategic, not just technical. It determines accessible liquidity, partner ecosystems, and regulatory demands. Some institutions adopt multi-chain strategies to retain flexibility and leverage each network’s strengths.
As networks mature, Layer-2 solutions are emerging to increase throughput and cut costs while retaining L1 security. For high-volume finance, Layer-2s will be essential as tokenization scales.
3.2 Smart contracts
Smart contracts are the automation engine of tokenization—code that executes when conditions are met. Coupon payments on bonds, automated collateral moves, and compliance logic can all be handled on-chain.
The key advantage is intermediary reduction. Where traditional transactions require many parties to validate and execute, smart contracts automate the flow, saving time and cost. For example, maturity payments on tokenized bonds can be executed automatically without manual intervention.
Challenges remain. Most token contracts are custom, hindering cross-system interpretation and creating friction for integration, compliance, and secondary trading. Industry groups are working on open frameworks, but adoption is early and fragmented. Standardized templates will materially improve interoperability.
Security is critical. Bugs or vulnerabilities can cause serious financial loss, and post-deployment fixes are hard. Rigorous audits, testing, and sometimes formal verification are essential, and leading institutions apply strict SDLC and QA controls.
3.3 Oracles
Blockchains are closed systems; they can’t access external data by themselves. Oracles bridge this gap, feeding real-world data so smart contracts can execute based on external conditions.
For tokenized real estate, oracles might provide property prices, rental income, and title changes. For commodities, market prices and quality attestations. For financial products, interest rates, FX, and credit ratings.
Reliability is paramount. Bad data can trigger unintended contract behavior. Decentralized oracle networks mitigate single points of failure by aggregating from independent sources. Some projects integrate directly with regulated data providers (e.g., Bloomberg, Refinitiv) to assure data quality. As tokenization expands, trustworthy data pipelines become core infrastructure.
3.4 Wallets & custody
Wallets and custody underpin user experience for holding and managing tokenized assets. Like bank accounts in traditional finance, digital wallets are the store of value in a tokenized economy—but management is more complex because loss of a private key can mean permanent loss of access.
- Self-custody: users control keys and have full autonomy.
- Custodial wallets: a third party (exchange/financial institution) manages keys, trading some control for convenience. Institutional investors typically prefer regulated custodians for compliance and security.
Wallet-as-a-Service (WaaS) lets firms offer wallet capabilities without building infrastructure from scratch. Banks and fintechs can embed wallets into existing apps so customers can hold and trade tokenized assets without installing separate wallets—significantly lowering entry barriers.
Control over wallet infrastructure is strategic. Some institutions outsource to enter the market faster; others build in-house to retain control over asset behavior and integration. Either way, secure, intuitive wallet infrastructure is non-negotiable. In many cases, users won’t even realize they’re interacting with tokenized assets—just as no one thinks about database schemas when using a banking app.
3.5 Trading infrastructure & compliance
After issuance, tokens must be tradable. Trading infrastructure provides secondary-market liquidity. Traditional venues are listing tokenized securities; DEXs are becoming more sophisticated; hybrid platforms seek to combine regulatory safeguards with DeFi-style efficiency.
Core to this is Delivery versus Payment (DvP)—simultaneous on-chain exchange of asset and cash. Most platforms still lack full interoperability; cash legs often settle off-chain, limiting circulation and market scale. Solving this unlocks smoother tokenized trading.
Compliance is another critical layer. KYC/AML must be embedded so trades meet regulatory requirements. Smart contracts can restrict who can hold or trade specific tokens (e.g., qualified-investor-only securities).
Some initiatives integrate digital identity directly on-chain. Once verified, identity can be reused across platforms, avoiding repeated KYC, improving UX, and reducing institutional compliance costs. As the market matures, compliance becomes embedded in transactions rather than a parallel process.
4. The three adoption phases—and where we are
4.1 Phase 1: Start with low-risk products
Phase 1 focuses on institutional onboarding—tokenizing familiar, regulated products (MMFs, corporate bonds) where operational gains are immediate and compliance clearer. Early efforts help institutions build issuance, custody, and settlement capabilities.
A landmark was BlackRock’s tokenized U.S. dollar institutional money-market fund launched on Ethereum in 2023—fully regulated, 24/7 settlement, investor access via digital wallets. The BIS has also included tokenization in major initiatives (e.g., Project Guardian), acknowledging its role in future regulatory infrastructure.
Phase-1 pilots typically run on private or permissioned chains to minimize regulatory uncertainty and learn in controlled settings. Volumes are small, but the know-how gained—technical integration, legal structuring, process changes—is essential for later scaling. Dialogue with regulators begins here, shaping future rules and lowering barriers for full deployment.
4.2 Phase 2: Expand into complex assets
In Phase 2, institutions tokenize higher-yield and more complex assets (private credit, structured finance, corporates). These require flexible compliance logic, robust secondary markets, and broader investor access. If Phase 1 was about efficiency, Phase 2 is about value creation (liquidity, composability, yield).
Institutions begin moving from private to permissioned-public networks to access larger liquidity and interoperability. Recent examples include Société Générale and Citi. Some are experimenting with tokenized real estate and infrastructure, often via SPVs or fund wrappers to meet regulatory demands.
Acceleration depends on demand, regulatory progress, and platform maturity—especially clearer rules for tokenized debt, structured products, and digital custody. While Europe and parts of Asia lead in places, recent U.S. shifts could narrow the gap quickly.
Many institutions hesitate to move beyond limited pilots—not for technical reasons, but because new models challenge legacy revenue lines. Rather than collaborating to reshape markets, some defend businesses unlikely to survive the transition. As one industry expert notes, “Proprietary platforms feel safer, but the real value will come from differentiated services built on shared infrastructure.”
Success in Phase 2 requires strategic courage. Defending legacy revenue risks falling behind; embracing tokenization as the foundation for new business models positions leaders to set the pace.
4.3 Phase 3: System-level transition
Phase 3 is a system-level shift. Tokenization extends into illiquid classes (PE, hedge funds, infrastructure, RMBS/CMBS). Timing varies by asset class, but the transition requires: sufficient secondary liquidity, acceptance of tokens as collateral in core workflows, regulatory frameworks covering end-to-end lifecycle (issuance, distribution, compliance), and institutional infrastructure for custody, pricing, KYC, and accounting.
No single institution can build this alone. Cross-industry coordination among custodians, issuers, exchanges, and regulators is essential. A future where tokenized assets trade, collateralize, and price as easily as traditional assets demands common standards and interoperable systems.
Profitability, efficiency, and innovation will drive adoption. Institutions building this infrastructure will define how finance works next. As an Asia-based expert notes, “Historically there’s been limited overlap between financial-industry tokenization and crypto-native tokenization. With RWAs growing, non-crypto players now ask how tokenized assets can open historically inaccessible segments. Global adoption is poised to scale exponentially.”
In Phase 3, tokenized assets become standard. Investors hold tokenized PE, real estate, and infrastructure bonds as naturally as stocks and Treasuries. Advisors and AI agents recommend them based on yield, risk, and liquidity profiles—whether an asset is on- or off-chain becomes less relevant.
4.4 Where most institutions are today
Most institutions are in Phase 1 or entering Phase 2. Pilots are proliferating, but true scale remains limited. The bottleneck isn’t technology; it’s organizational readiness and strategic will. Many understand tokenization’s potential but face legacy systems, regulatory uncertainty, and internal resistance.
Leaders are already beyond Phase 2. JPMorgan’s Kinexys, BlackRock’s tokenized fund, and Société Générale’s blockchain bond issuance show tokenization is no longer hypothetical—it’s live and creating value. These institutions are setting standards the market will follow.
For others, the catch-up pressure is rising. Waiting too long risks entering a market where tokenization is already mainstream—much harder to catch up then. Institutions moving now aren’t just preparing for the future; they’re shaping it—building infrastructure, forging partnerships, and defining the standards that will govern finance for the next decade.
5. Challenges tokenization must overcome
5.1 Interoperability gaps
One of the biggest blockers to scale is lack of interoperability across platforms. Issuance is no longer the hard part; the constraint is cross-platform settlement, especially true on-chain DvP of asset and cash. Most platforms lack interoperability, with cash legs often off-chain—limiting circulation and market growth.
Proliferation of proprietary platforms deepens silos: tokens issued on one platform aren’t easily recognized or tradable on another. Liquidity fragments, investors juggle multiple systems, and the promise of 24/7 global access weakens.
Smart contracts also lack standardization. Bespoke token logic is hard to interpret across systems, adding friction for integration, compliance, and secondary trading. Open frameworks are emerging, but adoption is early and uneven. Until standard token interfaces prevail, true fungibility across platforms will be elusive.
Solving interoperability requires both technical and political coordination—bridges/protocols across chains and industry consensus on common standards. Many institutions hesitate to cede platform control, but without interoperability, tokenization cannot outcompete current systems. As some experts put it: there are times to compete—and times to cooperate.
5.2 Regulatory fragmentation
Regulation varies widely. Jurisdictions like Switzerland, Singapore, the UAE, the EU, and the UK have made meaningful progress—clarifying tokenized securities, digital custody, and asset classifications. Others (e.g., India) are advancing more cautiously, still refining the legal treatment of smart contracts, digital custody, and asset classes.
This is a transition, not paralysis. The fastest clarity emerges where industry and policymakers work together. Institutions investing in engagement today help write tomorrow’s rules and lower barriers later. Still, uneven progress forces global firms to navigate multiple legal frameworks—adding complexity and cost.
Cross-border issues loom large. Tokens may trade 24/7 on blockchains, but what’s legal in one jurisdiction may not be in another. Investor rights to hold or trade foreign tokenized assets can be restricted, limiting liquidity and global access.
Some institutions take regional rollouts in clearer jurisdictions; others build flexible platforms configurable to multiple regimes. Over time, international efforts toward regulatory harmonization should reduce friction—but that will take years. Meanwhile, momentum is real: MiCA in Europe, evolving U.S. guidance, and active sandboxes in Singapore and Hong Kong all point in the same direction—more clarity, more alignment, more acceptance.
5.3 Rebuilding trust
Skepticism persists—and understandably so. Early token projects overpromised, lacked regulation, or were poorly executed. The 2022 collapses were a wake-up call. Since then, tokenization has moved into institutional finance, where transparency, auditability, security, and compliance are mandatory.
Trust won’t be rebuilt by education campaigns alone—it will be earned through performance: faster settlement, lower costs, seamless portfolio integration. As reputable institutions (major banks, asset managers, regulated exchanges) offer tokenized products, perceptions are shifting—from speculative experiments to legitimate financial infrastructure.
Security is central. While blockchains benefit from cryptographic security, vulnerabilities remain in custody, smart contracts, and user interfaces. High-profile hacks or contract failures can rapidly erode trust. Institutions are investing in rigorous security practices, recurring audits, and transparent risk disclosures to prove tokenized assets are as safe as, or safer than, traditional instruments.
Education still helps. Many investors and enterprises don’t fully grasp what tokenization is, how it works, or its benefits. Financial institutions, industry groups, and regulators are increasing outreach. But ultimately, consistent results will build trust.
5.4 Technical complexity and integration cost
Integrating tokenization with existing financial systems is technically complex and expensive. Banks operate decades-old legacy stacks; connecting them to blockchain infrastructure isn’t trivial. Core banking, risk, compliance, and customer interfaces must all be updated to support tokenized assets.
Initial deployments can be substantial. A focused use case might be launched for under $2M, but full integration across custody, trading, compliance, and multiple asset types can run $15–20M for a mid-sized bank and up to $100M for a Tier-1 FI. This isn’t an experiment budget; it’s a strategic investment in future business models and revenue.
Over time, the economics likely flip. Tokenization platforms should run at lower operating cost than legacy systems—especially as interoperability and scale improve. Automated compliance, real-time settlement, and fewer intermediaries all contribute to long-term savings. Early builders absorb upfront costs but position for a more efficient, adaptable future.
Talent is another hurdle. Tokenization needs expertise in blockchain engineering, smart-contract development, cryptography, and digital-asset regulation. These skills are scarce. Institutions must hire, retrain, or partner for depth. The right team is as critical as the tech.
5.5 Market liquidity and network effects
Tokenized assets need sufficient liquidity to succeed. Without it, fair pricing and the value proposition of tokenization suffer. Liquidity depends on network effects: more participants → more liquidity → more participants. The challenge is kick-starting the flywheel.
Early markets are thin: few buyers/sellers, weak price discovery, wide spreads—deterring participation and perpetuating illiquidity. Solutions include incentives (fee discounts, better terms, direct market-making support) and partnerships with large institutions to anchor liquidity. As more assets tokenize and more investors join, liquidity should compound—but active bootstrapping remains essential.
Standards and interoperability amplify network effects. If tokens trade easily across platforms, liquidity aggregates; if platforms are isolated, liquidity fragments and markets remain inefficient. Convergence on common standards strengthens network effects and accelerates growth.
6. Is tokenization right for us?
6.1 Five conditions where tokenization excels
Tokenization isn’t a fit for every asset or business model. Where traditional structures are already efficient, tokenization can add unnecessary complexity. But when certain conditions are met, value creation is substantial:
- Access to new asset classes: Opening traditionally inaccessible assets (container ships, fine art, infrastructure projects) to broader investor bases. Tokenized ship shares could even incentivize better maintenance by aligning crew interests.
- Significant cost/efficiency gains: Assets with many intermediaries and complex coordination (e.g., structured products) benefit from automation and transparency—lower processing costs and faster settlement.
- Fractional ownership and easy transfer: Real estate, commodities, and collectibles gain larger potential markets; transfers happen in minutes, not weeks.
- Settlement/logistics advantages: Tokenized assets like insurance premiums or bond dispositions can be auto-settled via smart contracts; supply chains can track provenance, location, and ownership without moving the physical asset.
- Improved trust and transparency: In opaque markets like diamonds, blockchain enables certification, standardized attestations, and mine-to-market traceability—making the asset class more investable.
6.2 What leaders are doing
Major FIs are moving beyond pilots. JPMorgan’s Kinexys has processed over $1.5T with $2B+ in daily volume. BlackRock’s tokenized MMF shows how regulated, institutional-grade products can operate on-chain.
In Europe, Société Générale, HSBC, and ABN AMRO have issued bonds on public chains. Standard Chartered is expanding tokenized finance across multiple jurisdictions including Luxembourg. In APAC, Singapore, Hong Kong, and Japan are testing tokenized funds and structured products through regulatory sandboxes.
In the Middle East, the UAE leads in real estate and private-credit tokenization with clear legal frameworks and government support. Switzerland remains among the most mature regimes for tokenized securities. These leaders aren’t just testing—they’re setting standards, building liquidity, and creating roadmaps others can follow.
6.3 Finance over the next decade
Tokenization is not the endpoint; it’s a base layer. The next market architecture will feature on-chain collateral, programmable liquidity, and AI-managed assets. Institutions building flexible systems now will adapt quickly as these capabilities appear; laggards may be stuck on yesterday’s rails while competitors shape tomorrow’s market.
Often, customers won’t know their transactions use tokenized assets or wallets—the rails and legal frameworks will be invisible, while the benefits are obvious: easier access, lower costs, faster processing. In other cases, digital assets will play a strategic role in diversified portfolios—used as collateral for low-rate loans and to expand exposure across asset classes, regions, and risk profiles.
Financial inclusion is central to the long-term vision. Emerging-market investors gain access to global assets previously limited to the wealthy and well-connected. SMEs fund more easily; individuals build wealth in ways that were impossible before. Tokenization isn’t just about efficiency—it’s about making finance more accessible, transparent, and fair.
As one industry expert puts it, “The market is shifting from merely holding tokens on-chain to integrating them into real economic activity—collateral, trade finance, and beyond.” Tokenization isn’t the future—it’s happening now. Institutions that move today will define how the next generation of finance operates.
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