Bitcoin’s recent surge has reignited optimism around the transformative potential of blockchain technology, which underpins cryptocurrencies, to revolutionize various sectors, from real estate ownership to the bond market.
One of the buzzwords of the year, both in traditional finance and the crypto world, is tokenization—the process of creating digital versions of physical assets on a blockchain. This excitement mirrors the hype from a few years ago, when blockchain was touted as a solution for everything from tracking produce at Walmart to digitizing stock ownership, though those efforts ultimately fell short.
Tokenization of non-stablecoin assets has struggled to gain momentum. According to data from rwa.xyz, only around 67,530 entities—mostly institutional players—hold tokenized assets beyond stablecoins, representing just 0.003% of the global asset value. Many companies in this space are nearing the brink of failure, according to research from Opimas.
A large part of the problem has been the regulatory environment in the U.S., where authorities have long discouraged banks from engaging with crypto-related activities. While tokenized securities, which run on blockchains and follow traditional securities rules, are often lumped together with cryptocurrencies, they have faced heightened regulatory scrutiny. As a result, many financial service providers have shied away from this technology, choosing instead to focus on areas like artificial intelligence.
However, there are signs that this may be changing. With President-elect Donald Trump planning a more crypto-friendly regulatory approach and BlackRock Inc.—the world’s largest asset manager—launching a tokenized money-market fund, other companies are beginning to follow suit.
Charlie You, co-founder of rwa.xyz, explains that these developments have prompted many companies to speed up their timelines and take action after previously watching from the sidelines. For instance, Visa launched a platform in October allowing banks to issue fiat-backed tokens, while Tether, a major stablecoin issuer, debuted its tokenization platform in November. That same month, Mastercard integrated its token network with JPMorgan Chase’s Kinexys blockchain platform to facilitate cross-border business transactions, a move that could eventually bring such payment systems to more financial institutions.
Raj Dhamodharan, Mastercard’s executive vice president of blockchain and digital assets, notes that this is a trend that will likely continue to evolve, creating new business opportunities. Kinexys already supports transactions worth about $2 billion per day, according to JPMorgan.
With money-market funds investing in U.S. Treasuries poised for tokenization, Boston Consulting Group predicts that tokenized assets under management could soar to over $600 billion by 2030, up from a mere $2 billion today. In anticipation of this growth, the Commodity Futures Trading Commission is considering new guidelines to allow tokenized assets to be used as collateral.
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Tokenization is seen as a way to boost liquidity, making assets accessible to a broader range of investors, while cutting costs and transaction times. Rob Krugman, Chief Digital Officer at Broadridge, which has tokenized trillions in repurchase agreements, suggests that the efficiency gains from tokenization could surpass even the impact of the internet, fundamentally altering how markets operate.
However, not everyone is convinced. Some worry that the rush to tokenize could lead to the creation of assets that are unsuitable for tokenization, exposing investors to new risks like hacks. Others fear that tokenized products could come with higher fees and liquidity issues. Nathan Allman, CEO of Ondo Finance, argues that beyond U.S. Treasuries, tokenized public securities are generally not valuable, with many projects offering poorly priced assets to unsophisticated investors.
Carlos Domingo, CEO of the tokenization platform Securitize, is skeptical about the potential of tokenizing real estate, while Noelle Acheson, author of the Crypto is Macro Now newsletter, questions the demand for tokenized private equity. After all, private companies often prefer to restrict equity transfers to a select group of partners.
Despite these concerns, tokenization could also reduce certain risks. By adding programmability to blockchain-based tokens, greater automation could lower counterparty risks. For example, tokens could be placed in escrow and released upon the delivery of goods.
According to analysts at Capco, there are significant opportunities in using blockchain to enhance payment systems, but it will take time to fully realize this potential.
“There are many opportunities,” says Ervinas Janavicius, managing principal at Capco. “But there’s still a lot of work to be done.”