Global consulting firm McKinsey believes that tokenization of financial assets has reached a critical tipping point but still faces barriers that hinder widespread adoption.
“Digitization of assets seems increasingly inevitable as the technology matures and demonstrates measurable economic benefits. Despite this clear momentum, mass adoption of tokenization is still far away.”
McKinsey said in a June 20 research report that tokenization grew from pilot projects to large-scale deployments, and the first large-scale applications were already transacting trillions of dollars monthly.
However, widespread adoption remains elusive due to “cold start” issues as well as other regulatory, technological and operational barriers.
The “cold start” problem
According to the report, the main challenges arise from limited liquidity and trading volumes, hindering the formation of a robust market. The benefits of tokenization – such as increased collateral portability, faster settlement times, and improved transparency – cannot be fully realized without significant participation from issuers and investors.
A cold start problem represents a situation where two problems occur simultaneously and it is impossible to predict which situation caused the other. Without a critical mass of tokenized assets, potential investors remain hesitant due to concerns about liquidity and market depth.
At the same time, issuers are reluctant to tokenize more assets because of lack of demand and trading activity. Overcoming this challenge requires use cases that deliver clear and demonstrable benefits, such as reducing costs, improving efficiency, and providing greater market reach.
For example, tokenized money market funds have attracted more than $1 billion in assets under management, showing early success. However, the broader market requires more significant participation to achieve the network effects necessary for widespread adoption.
The report affirms that building a strong ecosystem where both supply and demand grow in parallel is very important.
Wave of acceptance
McKinsey report predicts the total market capitalization of tokenized assets could reach $2 trillion by 2030, driven by mutual funds, bonds, exchange-traded notes (ETNs)*, loans and securitization. In an optimistic scenario, this value could double to $4 trillion.
According to the report, adoption is expected to come in waves, starting with asset classes that offer a proven return on investment and scalability. Certain asset classes have seen significant adoption due to the efficiency and valuable benefits that blockchain technology brings.
Tokenized money market funds have attracted over $1 billion in AUM, while in the lending space, blockchain-enabled platforms like Picture Technologies have facilitated billions of dollars in origination volume , showing the potential for increased efficiency and transparency.
McKinsey said the path forward for tokenization includes collaboration between financial institutions and market infrastructure participants to establish a minimum viable value chain. Financial institutions must evaluate their product suite and determine which assets will benefit most from tokenization, aligning strategic priorities with the market opportunity.
Additionally, coordinated efforts across the financial ecosystem will be essential to realize the full benefits of tokenization and set the stage for transformational change in how services operate. finance.
*Cryptocurrency exchange-traded notes (ETNs) are financial products issued on exchanges and related to crypto assets such as Bitcoin, Ethereum, or other cryptocurrencies. Just like traditional ETNs, cryptocurrency ETNs are also financial instruments that investors can buy and sell on exchanges. However, the main difference between crypto ETNs and other ETNs is that their underlying asset is cryptocurrency instead of traditional assets like stocks or commodities.
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