From ripples to waves: The transformational power of tokenizing assets

Tokenization, the process of creating a unique digital representation of an asset on a blockchain network, has reached a tipping point after many years of promise and experimentation. The benefits—including programmability, composability, and enhanced transparency—can empower financial institutions to capture operational efficiencies, increase liquidity, and create new revenue opportunities through innovative use cases. These benefits are being realized today, with the first at-scale applications transacting trillions of dollars of assets on-chain per month. However, there have been many false starts and challenges thus far. Further integration of these technologies into the mainstream in a robust, secure, and compliant manner will require cooperation and alignment among all involved stakeholders. As infrastructure players pivot away from proofs of concept to robust scaled solutions, many opportunities and challenges remain to reimagine how the future of financial services will work (see sidebar, “What is tokenization?”).

If we were to design the future of financial services, we would arguably include many of the features of tokenized digital assets: 24/7 availability; instant global collateral mobility; equitable access; composability, thanks to a common technology stack; and managed transparency. Highlighting the strategic future of this technology, Larry Fink, chairman and CEO of BlackRock, said in January 2024, “We believe the next step going forward will be the tokenization of financial assets, and that means every stock, every bond […] will be on one general ledger.”¹ More and more institutions are rolling out and scaling tokenized products, from tokenized bonds and funds to private equity and cash.

The digitization of assets seems even more inevitable now as the technology matures and demonstrates measurable economic benefits. Despite this visible momentum, broad adoption of tokenization is still far away. Modernizing existing infrastructure is challenging, especially in a regulation-heavy industry such as financial services. Overcoming inertia requires coordination across the value chain. Given this, we expect the adoption of tokenization to occur in multiple waves: the first will be driven by use cases with proven return on investment and existing scale. Next will be use cases of asset classes whose current markets are smaller, benefits less apparent, or require solutions to tougher technical challenges.

Based on our analysis, we expect that total tokenized market capitalization could reach around $2 trillion by 2030 (excluding cryptocurrencies like Bitcoin and stablecoins like Tether), driven by adoption in mutual funds, bonds and exchange-traded notes (ETN), loans and securitization, and alternative funds. In a bullish scenario, this value could double to around $4 trillion, but we are less optimistic than previously published estimates as we approach the middle of the decade.

In this article, we provide our perspective of how the adoption of tokenization could play out. We describe the current state of adoption (focused mostly on a limited set of assets), as well as the benefits and feasibility of wider tokenization. We then examine current use cases that take aim at a meaningful market share and provide a rationale for waves of growth across different asset classes. For the remainder of the major financial asset classes, we examine the “cold start” problem and offer practical steps for how it may be overcome. Finally, we consider the risks and benefits for first movers, and consider the “call to action” for all participants in the future of financial market infrastructure.

Tokenization in waves

Tokenization’s rate and timing of adoption will vary across asset classes resulting from differences in expected benefits, feasibility, time to impact, and market participants’ risk appetite. We expect those factors to characterize likely waves of activity and adoption. Asset classes that have larger market value, higher friction along the value chain today, less mature traditional infrastructure, or lower liquidity are more likely to achieve outsize benefit from tokenization. For instance, we believe tokenization feasibility is highest for asset classes with lower technical complexities and regulatory considerations.

The appetite for investing in tokenization likely scales inversely to the richness of fees earned from today’s less efficient processes, depending on whether the functions sit in-house or are outsourced, and how concentrated the main players and their fees are. Outsourced activities often reach economies of scale, reducing the incentives for disruption. Time to impact—that is, how quickly returns on tokenized-related investments can be achieved—can augment the business case and thus the appetite to pursue tokenization.

A given asset class can lay the foundation for adoption of subsequent asset classes by ushering in greater regulatory clarity, infrastructure maturity, interoperability, and accelerated investment. Adoption will also differ by geography, influenced by a dynamic and shifting macroenvironment, including market conditions, regulatory frameworks, and buy-side demand. And finally, high-profile successes or failures could propel or restrict further adoption.

Asset classes with the fastest paths to adoption

Tokenization is progressing at a gradual pace, with acceleration expected as network effects gain momentum. Given their characteristics, certain asset classes will likely be faster to reach meaningful adoption—defined as more than $100 billion of tokenized market capitalization—by the end of the decade. We expect the most prominent front-runners will include cash and deposits, bonds and ETNs, mutual funds and exchange-traded funds (ETFs), as well as loans and securitization. For many of these, adoption rates are already material, underpinned by greater efficiency and value gains from blockchain along with higher technical and regulatory feasibility.

We estimate that the tokenized market capitalization across asset classes could reach about $2 trillion by 2030 (excluding cryptocurrencies and stablecoins), driven mainly by the above assets (Exhibit 1). The pessimistic and optimistic scenarios range from about $1 trillion to about $4 trillion, respectively. Our estimate is exclusive of stablecoins, including tokenized deposits, wholesale stablecoins, and central bank digital currencies (CBDCs) to avoid double counting, as these are often used as the corresponding cash legs in the settlement of trades involving tokenized assets.

Exhibit 1

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